Echoing views from a previous
These views were part of a new quarterly sector summary. According to Moody's, the strong auto loan ABS performance is a result of the improvement of consumer credit as well as the exceptionally strong used-vehicle market.
"Delinquencies remain at historical lows, and excess spread, the first level of credit protection against losses, has on average been sufficient to cover losses," said Sanjay Wahi, a an assistant vice president and analyst at Moody's.
The rating agency said that across all subsectors, deals issued in 2009 and 2010 are performing considerably stronger versus Moody's expectations at the time that they were rated.
"As compared to those of prior years, the 2009 and 2010 transactions also benefit from stronger underlying credit, with borrowers having higher average FICO scores, and loan terms with short maturities," Wahi said.
Since August 2011, the rating firm has lowered its loss expectations on average by 20% to 50% from original expectations at the point of the ratings' issuance. This has led to upgrades or reviews for upgrade of many of these securities.
The rating agency has also lowered its prior loss expectations for auto loan deals that were issued before 2009. Its analysts currently anticipate that these vintages will perform on average 1.5 to 2 times weaker versus their original expectations. This is down from earlier estimates in 2009 of 1.5 to 3 times.
As a result, Moody's said that many securities from these offerings have also been upgraded. Prime and subprime pools on average fall to the low- and mid-end of the range of Moody's current loss expectations, while near-prime pools, which suffer from concentrations in some economically weaker U.S. states, on average are toward the high-end.
The 2011 vintage of auto loan deals are also performing strongly, Moody's stated, and similar to their 2010 counterparts. However, they are slighty weaker in terms of the borrowers' credit quality of the loans backing them and also their lending terms. As these deals season, Moody's analysts will update their loss expectations as needed as well as append them to subsequent reports.
Meanwhile, Moody's also said that the credit performance of leases in auto lease ABS rated by it is still strong even with the sluggish recovery since the onset of the financial crisis.
"Transaction performance has either been close to or better than our original expectations in terms of credit loss, especially for more recent transactions," Wahi said. "And we expect performance to remain strong, given the high prime credit quality of the lease obligors, the relative stabilization of the consumer credit environment and the exceptionally healthy used vehicle market since mid-2009."
Residual values, which are the market value of vehicles at lease maturity and which are marking up about two-thirds of the expected cash flow at the time of the ABS issuance, are still benefitting from the strong market for used vehicles, the prices of which are at all-time highs, coming from a low in December 2008.
Futhermore, Moody's said that high used vehicle prices will continue to lessen — perhaps even remove — residual losses on lease turn-ins over the near term.
"Most of our rated outstanding transactions are seeing double-digit gains on sales of off-lease vehicles," Moody's Wahi said. "These deals are generally structured to withstand residual value losses of 35% or higher at the 'Aaa(sf)' level."
Moody's currently rates 13 offerings mostly 'Aaa(sf)', making up around $7.4 billion, up from up from 10 deals at the start of this year and marginally higher compared to the $7 billion rated in December 2010.
