Despite noise about subprime’s growth in the credit card segment, the segment remains a small portion of the asset class and does not seem poised to take up a much larger share in the future, according to Ildiko Szilank, a director of ABS Ratings at Standard & Poor’s, speaking at the agency’s U.S. ABS 2014 Outlook and Hot Topics conference.
She said that subprime accounted for about 10-12% of new accounts last year, and that in general new accounts were linked to strong borrowers. She noted that following the Credit Card Accountability, Responsibility and Disclosure Act of 2009, tapping the subprime sector has been more difficult. Throw in the costs of subprime origination associated with Basel rules and it is unlikely subprime will take more than a small share of the credit card segment, although nonbank lenders certainly have more breathing room to expand this business line (Fenway Summer, for instance.)
Subprime in the auto sector, in contrast, has taken off, giving rise to concerns that it may be overheating. As pointed out by Jennie Lam, a director of ABS Ratings at S&P, underwriting standards among originators of auto-loan securitizations has eroded, particularly among greener lenders.
A buy-sider and an originator at the conference warned that auto-loan management teams that hadn’t been through a crisis may not know how to handle the next slowdown, while originators overly dependent on ABS for funding were particularly vulnerable to a souring of sentiment.
As for newer asset classes, S&P Senior Director Kate Scanlin said that solar securitization would not be a “flow asset” in the foreseeable future, given the limitations imposed by a short track record. The agency rated the SolarCity deal that came out last November, giving it BBB+’.
The agency forecast about $191 billion of ABS issuance in the U.S. this year, compared to $186 billion in 2013. Auto-related securitization is expected to reach $93 billion in 2014; credit card securitization $40 billion; student loans $15 billion; Equipment/fleet $17 billion; and “other” asset classes $26 billion. Sourced from S&P, the graph below shows issuance since 1996, broken down by asset class.