Auto ABS Issuers Pull Pools Back From Harvey, Irma Impacted Areas

  • William Hoffman
  • September 12, 2017

During one of the busiest times for the secondary market, auto lenders are excluding vehicles affected by Hurricane Harvey from ABS issuances over fears of negative-equity deals, according to presale reports.  

Exeter Finance Corp., Fifth Third Bank Dealer Financial Services, Ford Motor Credit Co., and Santander Consumer USA have all removed vehicles from their pools with registered zip codes in the Federal Emergency Management Agency (FEMA) designated disaster relief areas of Texas.

Bankers and investors are concerned about whether the value of these vehicles will be enough to pay off the outstanding loan amounts, even if borrowers had comprehensive insurance that covers flooding, according to The Times of India. Other investor concerns include whether these consumers remained current on their insurance payments, and why a borrower would continue making loan payments for a car they can’t drive.

It’s unclear what dollar value has been removed from the pools, but geographic concentrations are down in Texas and Florida. For example, Santander’s concentration of loans from its top three states — Texas, Florida, and California — totaled 27.8% of the pool, down from 32.4% in its previous issuance this summer, according to Fitch Ratings’ presale reports.

“This has reduced the pool’s exposure to Texas, which has historically been one of the highest state concentrations in SDART pools,” Fitch analysts wrote in the report.

Lenders have had less time to react to the impacts of Hurricane Irma, but Fitch expects a similar response.

“Ford Credit will likely utilize the same approach with regards to obligors affected by Hurricane Irma in Florida,” the report stated. “As these two states are two of the top-three largest state concentrations in the initial pool, the pool’s geographic concentrations may shift slightly at closing.”  

On the commercial side, S&P believes the impacts from Harvey will be largely muted for investors.

“Harvey’s impact on equipment or vehicle collateral in these deals should be mitigated by geographic diversification, as well as protections such as insurance,” S&P wrote in a report today. “Therefore, we don’t believe investors will feel a hit from collateral losses, nor do we anticipate any material increases in losses as a result of the Harvey flooding.”

For more content like this, check out the 17th annual Auto Finance Summit, which will take place on Oct. 25-27 at the Wynn Las Vegas. To learn more about this year’s event — or to register — visit the Summit’s homepage here.

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