The performance of auto loan and lease ABS deals has been revised to negative from stable due to coronavirus concerns, Fitch Ratings announced this morning. Fitch’s rated portfolio totals $72 billion of outstanding notes composed of 110 auto loans and 21 outstanding lease ABS transactions.
The outlook change reflects the ongoing impacts on unemployment and consumer household incomes, which will result in borrowers’ inability to repay their auto loans. Further, the surge in jobless claims hit 3.3 million yesterday, dwarfing the Great Recession peak of 665,000 in 2009. All factors represent “credit negatives for auto ABS portfolios,” Fitch noted.
Moving forward, Fitch will be monitoring ongoing delinquencies, prepayments, recovery rates and defaults through the summer months given the material impact on the sector from the spread of the virus across the nation. At press time, U.S. COVID-19 cases clocked in at more than 86,000.
“When looking at the impact on Chinese auto ABS performance as a comparison, Fitch has observed notable jumps in delinquencies and then those rolling into late-stage buckets, large declines in prepayment rates and recovery rates, and move up in losses well outside of normal trends,” the rating agency noted. U.S. auto ABS transaction performance is expected to deteriorate in a similar manner starting this month and through April.
To be fair, Fitch “expects most transactions to weather part of this storm in the near term as we assigned conservative proxies initially and thus relative cushions to protect against negative trends limiting the impact on ratings,” the agency noted. Yet, the ongoing spread and scale of the virus and its impact on the U.S. economy and consumers, and the policy measures instituted, are unprecedented and beyond prior industry and business cycle downturns.
Cutting the auto ABS performance outlook overall from stable to negative comes just days after Ford Motor Co.’s rating was downgraded by Fitch.
Fitch cut the OEM’s credit rating by one notch to BBB- with a “negative” outlook. The BBB- tranche is the lowest level still considered investment-worthy. The rating applies to both the OEM as well as its captive financier, Ford Credit.