The long-time slump in oil prices is negatively affecting a narrow band of CLOs and asset-backed securities invested in energy industry assets.
But the lower fuel costs are bringing improved consumer payment performance on mortgages and car loans, which reduce losses for consumer-credit backed ABS portfolios, according to a report issued Tuesday by Moody’s Investors Service.
Moody’s report indicates that the drop in prices has “so far negatively affected only a fairly narrow set of securitizations in a meaningful way,” said analyst Jody Shenn, according to a release.
Certain collateralized loan obligations and ABS with direct exposure to troubled energy companies have felt the worst “broad and severe” effects of the sunken prices, most notably in recent months: Moody’s has downgraded the ratings on 103 energy company issuers between December and late March.
But conversely, the lower fuel costs have allowed consumers to more easily pay mortgages and car loans. The impact on U.S. auto loans has been “mixed and mild,” the report states.
In states with a large segment of workers in the energy industry – Wyoming and North Dakota – the performance of auto loans is declining. However, in Texas, performance has improved, the report stated. “And though oil-related tanker cars can represent up to 10% of the assets in US railcar lease ABS transactions, there has as yet been no meaningful impact from potentially lower revenues from the assets,” according to a Moody’s release on the report.
Outside of Russian securitizations, the impact of oil prices has mainly been deal-specific, the report stated. "Nevertheless, we expect credit challenges created by the slump to continue as the energy industry's woes and their knock-on effects persist," Shenn stated.