At the current pace of issuance, auto ABS volume could reach a new all-time high of $110 billion as investors remain hungry for high-yielding subprime bonds and loss rates come down, Kayvan Darouian, senior analyst of consumer ABS at Deutsche Bank, told Auto Finance News.
Through May, auto ABS issuance are up 14% year over year to $61.3 billion, according to the company’s latest report. Despite slow car sales, Deutsche Bank anticipates a record volume year, topping $104 billion issued last year and the record $107 billion securitized in 2005.
“Especially for subprime auto, investors are looking for yield and trying to pick up spread,” Darouian said. “In the consumer ABS space, the places you can find [high yields] are subprime auto subordinates and securitizations backed by unsecured consumer loans.”
The industry entered the year concerned about rising delinquencies and net-charge offs, but consistent year-over-year declines have staved worries. In May, subprime annualized net losses fell to their lowest level in two years, dropping 66 basis points year over year to 6.76% of outstandings. Subprime delinquencies 60 days or more past due similarly fell 14 basis points year over year to 4.41%.
While losses will rise with seasonality, investors aren’t worried, Darouian said, because ABS performed well through the financial crisis and lenders have stopped the risky behavior of taking out policies to insure bond holders known as wraps — “No one does that anymore.”
