S&P: Credit Enhancements Reflect Weaker Credit Quality

Standard & Poor’s said in a September 24 report that as subprime lending has increased, credit quality has weakened and losses have risen. At the same time, credit enhancement in subprime auto loan ABS transactions has kept pace, in S&P’s opinion. This, coupled with the robust structural features inherent in auto loan ABS transactions, has contributed to relatively strong rating performance in the subprime auto loan sector, with 325 upgrades from 2004 through Sept. 12, 2014, and no downgrades. But the report also indicates that while subprime auto loan ABS collateral losses remain lower than pre-crisis levels, caution is still warranted, as lending standards could fall further due to the increased competition in the industry, as well as the entrance of new, fast growing subprime auto lenders.