Last month’s record-breaking U.S. used auto prices will help improve existing auto lease ABS, but will hurt future auto lease securitizations, according to a report by Moody’s Investors Service.
Moody's noted that used auto prices were the highest they have been since the used car price tracking service Manheim started tracking them in 1995.
The rating agency stated that the high auto prices are expected to have a positive credit impact on outstanding auto lease securitizations due to the increased collateralization that will result from amplified sales of maturing leases.
The rating agency explained that the ABS utilizes the gains to pay down the noteholders first followed by the equity holders. Paying down the noteholders offers added protection for the remaining notes by increasing their over collateralization.
Moody’s report highlighted the significance of the currently strong state of the market as 40% of outstanding auto ABS leases are set to mature in 2011. It also said that as a result of the positive outlook for the sector, it has reviewed for upgrade all non-‘Aaa (sf)’ securities.