Performance of ABS deals remained strong through April, but macroeconomic concerns might eventually weaken performance later in 2007.
Specifically, housing market weakness continues. At the same time, retail sales have slowed, and American consumers are confronting higher gasoline prices as they head into the traditionally busy summertime driving season. Taken together, these might precipitate a slowdown in the labor market and trigger an increase in late-stage delinquencies for some U.S. term ABS sectors later in the year, according to Fitch Ratings.
Several macroeconomic conditions shore up this idea, according to Fitch. Unemployment was at 4.5%, up slightly from 4.4%. Nonfarm payrolls, however, increased by 88,000 positions in April - a big jump considering that the average so far this year has been only 129,000. That suggests a potential slowdown in the labor market.
So far, the rating agency said, the securitization industry appears to be strong enough to weather any issues that might crop up later this year.
"While some mild weakness is possible later this year, Fitch's outlook for collateral performance for U.S. term ABS remains generally positive and should remain in line [with?] expectations," said director Kevin D'Albert.
At least for now, according to Fitch's upgrade and downgrade record, the ABS sector appears to be in sound condition. The rating agency reported that it upgraded 76 ABS classes, including a private placement in the credit card sector, while it downgraded five classes in the same month. So far this year, Fitch has boosted ratings on 111 classes and reduced 29. Those are more upgrades and fewer reductions than in the same period last year, when the agency did 78 upgrades and 68 downgrades.
The student loan sector was among several that fared well in April, in terms of ratings. After completely reviewing 117 outstanding FFELP loan ABS transactions, Fitch affirmed 87 classes and upgraded 26. The auto loan ABS sector received upgrades in 31 classes from 12 transactions.
The equipment leasing sector, however, saw a handful of downgrades, concentrated in four DVI Medical Equipment Securitizations transactions issued from 1999 through 2002, because of ongoing loan performance deterioration.
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