Traditional non-mortgage consumer assets continue to dominate U.S. ABCP conduit holdings while exposures to riskier assets have dropped well off their highs of the past two years. The falloff in exposure to assets such as RMBS and CDOs is not surprising, as many sponsors took proactive measures over the past two years to reduce, remove, or provide more support to certain exposures in an effort to allay investor concerns.
While Fitch expects the collateral performance of consumer-related assets to worsen throughout the recession, direct impact on ABCP conduit ratings should be minimal. Conduits have historically financed senior tranches of consumer-related transactions. Over the past two years, many conduit transactions have been restructured with higher levels of protection in the form of credit enhancement or other means of support. In conjunction with the availability of programwide credit enhancement facilities and other structural mechanisms, these actions are expected to help insulate ABCP investors from the deteriorating performance of consumer-related assets.
After peaking at $1.2 trillion in July 2007, U.S. ABCP outstandings decreased to $775.3 billion by July 2008 and have since dropped 43% to $441.4 billion as of July 2009, on a seasonally adjusted basis. Exposure to unsecured CP has increased and currently accounts for almost 60% of the CP market at $655.2 billion.
The implementation of government-sponsored funding facilities helped slow the decline in outstandings somewhat and provided liquidity in the market. Currently, fundings via the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF) and Commercial Paper Funding Facility (CPFF) totals 10.2% of the market. Each of these facilities have been extended to February 2010. The Money Market Investor Funding Facility (MMIFF) continues to remain unutilized and will expire in October 2009. Straight-A Funding (Straight-A), which initially funded on May 11, has ramped up significantly via the subscription of new student loan lenders. As of June 30, Straight-A outstandings were approximately $22 billion.
Fitch's credit outlook for ABCP in 2009 remains negative to stable, consistent with the Negative Outlook for U.S. financial institutions. ABCP rating actions, if taken, will most likely reflect the health of sponsors, liquidity providers, and other relevant counterparties. While performance measures are expected to worsen for most consumer asset classes, rating actions are expected to be limited, in particular for senior tranches typically funded through ABCP conduits.
U.S. ABCP overall exposures to non-mortgage consumer assets grew significantly through April 2009 when compared the same period in 2008. The three largest asset concentrations were in student loans (15.8%), credit cards (15.7%) and other assets (13.5%). While exposure to student loans increased by approximately 3% over the last year, credit cards experienced a slight decrease at 15.7%.
Over the April 2008-April 2009 period exposure to RMBS-related assets has remained steady at roughly 1.8%. CDO/CBO/CLO exposure, which previously hovered at about 5%, has now increased to 7.3% It should be noted that a majority of these CDO assets are highly rated, fully-supported pools and in some instances are secured by senior secured bank loans.
In response to eroding asset performance, many credit card issuers have taken measures to enhance their ABS transactions by either improving collateral quality or making structural revisions to increase credit enhancement on the facilities held by multiseller ABCP conduits.
A majority of the remaining exposures to troubled assets benefit from full credit support, thereby shifting investor risk from the credit quality of the underlying transactions to the highly-rated counterparties providing liquidity and credit support to these conduits.
The turmoil experienced by the auto industry, specifically with respect to Ford Motor Co., Chrysler, and General Motors has resulted in ABCP conduit sponsors having to remove or restructure transactions related to these issuers. In particular, Fitch has observed a sharp decline in exposure to Big Three dealer floorplan transactions.
Fitch-rated North American ABCP programs continue to be dominated by multiseller programs, followed by single seller and securities-backed vehicles. Bank-sponsored multisellers backed by 100% liquidity support and programwide credit enhancement continue to experience the best investor receptivity.
Darryl Osojnak is a managing director in Fitch Ratings ABCP group.
Kevin Corrigan is a director in Fitch Ratings ABCP group.