Over the past year, the motorcycle sector has shown substantial growth in the asset-backed arena, boosting one of the highest quality and well-serviced assets in the market.
Joe Astorina, a director at Fitch IBCA, speculates that issuance may grow or remain at a steady pace this year, with deals coming from big-name issuers of motorcycle loans, such as BMW or Harley-Davidson, the company that virtually controlled this sector last year.
"Those we could expect to see deals from," he said. " If you're talking about the racing bikes or the dirt bikes - things along those lines from Yamaha or Suzuki - I don't anticipate much from them."
Astorina explained that the buyers of those type of motorcycles are probably of a much bigger credit risk as opposed to someone who buys a Harley, a BMW touring bike or a Ducati, bikes that most consumers view as being a "lifestyle purchase."
"They are not buying them on a whim," he said. "Being that it is a luxury item and they can afford it, they are not as prone to default as say some college students that says Hey, I've got this brand-new credit card with a $5,000 credit limit on it, let me buy myself a motorcycle.' Then he realizes Wow the insurance is ridiculously high on it, I don't want this', and decides to default on his motorcycle loan. So if there is going to be issuance, we would expect it more from some of those big luxury names."
A noteworthy trend that this sector has seen has been the fact that there haven't been many stand-alone securitizations with these vehicles, Astorina said, but instead many issuers include motorcycle loans as a part of larger asset pools.
Although Fitch doesn't have any set criteria published on how it rates motorcycle transactions, Astorina explained that it is handled similar to an auto loan, coming up with a base case loss expectation for the pool of receivables. The tricky part, he added, would be in figuring out what sort of recovery assumptions to use on defaulted loans.
"Harley-Davidson, for example, has been performing extraordinary well," Astorina said. "Part of the reason for that is that a lot of times a Harley-Davidson motorcycle will increase in value over time. So even if someone defaults on a loan, you've got a bike that's now worth more than what the loan amount is for, so you're getting plenty of recovery value out of it, so that can only benefit a securitization."