Monthly extension rates for prime and subprime auto ABS loans declined for a second consecutive month, but still remain above pre-COVID-19 levels, according to the latest numbers tracked by S&P Global Ratings.
With only 48,300 loans totaling $931 million receiving a loan extension in May due to borrower repayment difficulty, the June 2020 extension rate for prime auto loans fell to 1.39% in June, compared to 2.16% in May.
For 14 subprime lenders (including three who register their asset-backed securities and provide Reg AB II loan-level data), the drop was to 7.66% in June from 8.9% in May. The total volume of extensions was $1.62 billion across 85,769 loans, according to an S&P issued Monday.
The subprime loan performance tracked by S&P involved ABS platforms from AmeriCredit (General Motors Finance), Santander Consumer USA and World Omni Financial Corp. (a Southeast regional Toyota captive-finance partner).
“While June's prime and subprime deferment levels are much improved from April's peak levels, they remain 4.3x and 5.0x the levels recorded in February, respectively, indicating that the number of consumers financially affected by COVID-19 remains high,” S&P’s report stated.
Mercedes Benz Finance Co.(3.18%), Nissan Motor Acceptance Corp. (2.34%) and World Omni (2.29%) had the highest extension rates reported among public prime shelf ABS issuers. Three lenders – Hyundai Capital America, BMW U.S. Capital, USAA and Ally Financial – reported a reduction of at least 50% in payment deferrals.
Payment deferrals present risks to ABS investors, due to the potential for delayed reporting of delinquencies, as well as the risk that loan collateral terms would extend beyond the note maturities and reduce expected principal payback.
For non-public subprime issuers, S&P showed all but one also reported a drop in extensions in June. First Investors Financial Services was the only expectation, with a jump to 2.02% compared to 1.55% in May. But “[despite[ the increase, the company for the second month in a row had the lowest extension rates in subprime,” S&P noted.
The highest extension rates in subprime includes two shelves sponsored by Santander – its deep-subprime platform Drive Auto Receivables Trust (DRIVE) at 10.63% and its near-prime Santander Drive Auto Receivables Trust (8.48%). The third highest deferments in June were reported by Exeter Finance (6.22%).
Three subprime issuers had drops in extensions of 50% or more – Avid Acceptance, Flagship Credit Acceptance and Consumer Portfolio Services.
In addition to lower rates of occurrence, S&P noted the extension periods are becoming shorter. In the peak deferment period in April, the most common extension term was two months. By June it was one month, “with 11 of the 21 issuers [tracked by S&P] relying on the shorter deferral period as their primary extension tool.” Among lenders shortening their average extension to a single month were California Republic Bank, Harley-Davidson Financial Services and American Honda Finance Corp.
Ally, which granted a majority of its April deferrals in the form of four-month extensions, has since reduced its most frequent deferral option to two months in June. But because over 60% of its extensions in March and April were for fourth months, 17% of its outstanding loans remained in extension status in June.
Capital One is the lender with the least amount of loans in extension status at 0.65%, after keeping over 90% of its extensions in March and April at only one month.
