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U.S. Auto Loan ABS Tracker: August 2019

Collateral performance in the U.S. auto loan asset-backed securities (ABS) sector demonstrated seasonal weakness. Losses increased month-over-month in both the prime and subprime segments, although recoveries in both segments improved compared with the prior month.

Prime And Subprime Losses Increased

U.S. prime credit net losses increased by three basis points (bps) to 0.58% in August both monthly and annually (see table 1 and chart 1). The monthly loss movement is an expected seasonal feature wherein losses tend to rise in the second half of the year. Most of the issuers included in the index experienced an uptick in losses both month-over-month and year-over-year, although most prime issuers continue to perform within our original loss expectations.

Subprime losses increased 57 bps to 8.78% in August from July and 13 bps from August 2018. Santander Drive Auto Receivables Trust (SDART) losses came down month-over-month, as well as year-over-year, whereas Drive Auto Receivables Trust (DRIVE) losses increased slightly month-over-month but came down year-over-year. These two platforms make up approximately 45.00% of the subprime index. After netting out three deep subprime issuers (including DRIVE), modified subprime losses increased by a smaller amount--27 bps month-over-month to 6.64% in August. On an annual basis, the modified index improved year-over-year from 6.92% in August 2018 and stood at the lowest August level since August 2015.

Table 1

Net Loss Rate Composite(i)
August 2011 August 2012 August 2013 August 2014 August 2015 August 2016 August 2017 August 2018 July 2019 August 2019
Prime (%) 0.61 0.42 0.42 0.50 0.55 0.64 0.67 0.55 0.55 0.58
Subprime (%) 5.95 5.40 5.31 7.34 7.45 8.67 8.97 8.65 8.21 8.78
Subprime modified (%) -- 5.09 4.84 6.44 6.63 6.90 7.09 6.92 6.37 6.64
(i)Represents monthly annualized losses.

Chart 1

image

Prime And Subprime Recoveries Improve

Prime recoveries improved to 58.99% in August from 58.50% in July and from 58.32% in August 2018 (see table 2 and chart 2). Subprime recoveries increased to 42.78% in August from 42.25% in July and from 41.05% in August 2018. Subprime modified recoveries decreased to 42.14% in August from 42.51% in July, but improved from 40.82% in August 2018.

The annual improvement in the subprime space was led by improved performance of the DRIVE and SDART transactions. In addition, both JD Power and Manheim noted strong August performance in the used car market, citing plentiful off-lease volume and ever-increasing new car prices.

Table 2

Recovery Rate Composite(i)
August 2011 August 2012 August 2013 August 2014 August 2015 August 2016 August 2017 August 2018 July 2019 August 2019
Prime (%) 68.36 62.94 63.89 59.18 57.17 54.87 55.93 58.32 58.50 58.99
Subprime (%) 42.94 45.44 49.73 43.11 40.11 39.42 39.15 41.05 42.25 42.78
Subprime modified (%) -- 45.63 50.34 44.14 41.47 40.87 39.30 40.82 42.51 42.14
(i)Represents monthly recovery rates.

Chart 2

image

Monthly Prime And Subprime Delinquencies Remained Stable

The prime 60-plus-day delinquency rate was nearly stable at 0.42% in August compared with 0.41% in July and 0.40% in August 2018 (see table 3 and chart 3).

The subprime 60-plus day delinquency rate remained stable at 5.25% in August compared to last month, whereas it increased from 5.02% in August 2018. This is the highest August level since 2009, and we believe it is due largely to the greater concentration of deep subprime loans being securitized. On a modified basis, after netting out three deep subprime lenders, the subprime modified 60-plus day delinquency rate increased to 3.82% in August from 3.75% in July and 3.48% in August 2018.

Table 3

60-Plus-Day Delinquency Rate Composite(i)
August 2011 August 2012 August 2013 August 2014 August 2015 August 2016 August 2017 August 2018 July 2019 August 2019
Prime (%) 0.52 0.39 0.38 0.42 0.47 0.47 0.48 0.40 0.41 0.42
Subprime (%) 3.03 3.33 3.51 4.28 4.58 5.16 5.10 5.02 5.25 5.25
Subprime modified (%) -- 3.27 3.31 3.75 3.89 3.99 3.77 3.48 3.75 3.82
(i) Represents 60+ day delinquencies.

Chart 3

image

Revised Loss Expectations

In September 2019, we revised our loss expectations for the following transactions:

  • Four DRIVE transactions backed by subprime auto loan receivables;
  • Six Flagship Credit Auto Trust transactions backed by subprime retail auto loans;
  • Two SDART transactions backed by subprime retail auto loans; and
  • Eight First Investors Auto Owner Trust transactions backed by subprime retail auto loans.

Of the 20 transactions we reviewed, we lowered our expected cumulative net losses (CNLs) for eight, maintained them for eight, and increased them for four.

Table 4

Drive Auto Receivables Trust
Series Initial expected net loss range (%) Revised/maintained expected lifetime CNL (%) (Revised Sept. 4, 2019.)
Drive Auto Receivables Trust 2018-1 26.50-27.50 21.50-22.50
Drive Auto Receivables Trust 2018-2 26.50-27.50 22.50-23.50
Drive Auto Receivables Trust 2018-3 26.50-27.50 22.50-23.50
Drive Auto Receivables Trust 2018-4 26.50-27.50 22.50-23.50
CNL--Cumulative net loss.

Table 5

Flagship Credit Auto Trust
Series Initial expected net loss range (%) Revised/maintained expected lifetime CNL (%) (Revised September 2018.) Revised/maintained expected lifetime CNL (%) (Revised Sept. 13, 2019.)
2016-2 11.50-12.00 13.00-13.50 13.00-13.50
2016-3 11.50-12.00 13.50-14.00 13.50-14.00
2016-4 11.75-12.25 13.50-14.00 13.50-14.00
2017-1 13.00-13.50 12.75-13.25 12.75-13.25
2018-2 12.50-13.00 N/A 12.50-13.00
2018-3 12.50-13.00 N/A 12.50-13.00
CNL--Cumulative net loss. N/A--Not applicable.

Table 6

Santander Drive Auto Receivables Trust
Series Initial expected net loss range (%) Revised/Maintained expected lifetime CNL (%) (Revised Sept. 18, 2019.)
2018-3 15.75-16.50 15.00-16.00
2018-4 15.75-16.50 14.50-15.50
CNL--Cumulative net loss.

Table 7

First Investors Auto Owner Trust
Series Initial expected net loss range (%) Revised/maintained expected lifetime CNL (%) (i) Revised/maintained expected lifetime CNL (%) (Revised Sept. 27, 2019.)
2015-1 8.25-8.50 10.50-11.00 11.00-11.25
2015-2 8.25-8.50 11.50-12.00 11.50-12.00
2016-1 9.25-9.75 11.00-11.50 11.50-12.00
2016-2 9.00-9.50 12.00-12.50 12.50-13.00
2017-1 9.75-10.25 12.25-12.75 11.25-11.75
2017-2 10.25-10.75 N/A 11.00-11.50
2017-3 10.75-11.25 N/A 10.75-11.25
2018-1 11.75-12.25 N/A 10.75-11.25
(i)FIAOT 2016-1 and 2016-2 revised December 2017, and FIAOT 2015-1, 2015-2, and 2017-1 revised September 2018. FIAOT--First Investor Auto Owner Trust. CNL--Cumulative net loss. N/A--Not applicable.

Historical Ratings Activity

Through September 2019, our reviews resulted in 264 upgrades and five downgrades. In September, we downgraded the 'BB- (sf)' rated class E notes on four CPS Auto Receivables Trust transactions (series 2016-B, 2016-C, 2016-D, and 2017-D) (see "Four CPS Auto Receivables Trust Ratings Lowered And Removed From CreditWatch Negative" published Sept. 9, 2019).

Table 8

Historical Ratings Activity--U.S. ABS Auto Loans
Period Upgrades Downgrades
2001 56 0
2002 25 1
2003 32 22
2004 48 0
2005 87 0
2006 91 0
2007 116 2
2008 23 0
2009 95 7
2010 62 5
2011 144 2
2012 138 0
2013 185 0
2014 94 0
2015 177 0
2016 357 0
2017 322 0
2018 335 2
2019(i) 264 5
Total 2,651 46
(i)Year-to-date Sept. 30, 2019.

Appendix I: Auto Tracker Methodology And Definitions--Frequently Asked Questions

Effective with our U.S. auto loan ABS tracker report, "U.S. Auto Loan ABS Tracker: Full-Year 2017 And December 2017 Performance," published Feb. 22, 2018, we modified our methodology for calculating the loss, delinquency, and recovery rates reported. Under the new methodology, we do not incorporate a transaction's performance into the composite results until it has been outstanding for four months. We have applied the new methodology to transactions that closed in December 2005 and thereafter.

How do you define prime auto loan ABS?

We generally categorize prime auto loan ABS transactions as those backed by loan pools with initial expected CNLs of 3.00% or less, average FICO scores of 700 or higher, and annual percentage rates (APRs) of 0.00%-5.00%.

How do you define subprime auto loan ABS?

We generally categorize subprime auto loan ABS transactions as those backed by loan pools with initial expected CNLs of at least 7.50%, average FICO scores of less than 620, and APRs that exceed 14.00%.

How do you calculate the monthly net loss rate?

The monthly net loss rate is annualized. It equals each transaction's net loss rate weighted by the transaction's ending pool balance for the current month over the aggregate ending pool balance of all transactions included in the index.

We only allow a transaction to enter the composite starting in its fourth month outstanding. Transactions usually have zero or low losses during their first three months, which dilutes the composite figures.

How do you calculate the monthly recovery rate?

We calculate recoveries by taking the recovery amount reported (which typically includes all recoveries, including disposition proceeds, post-disposition proceeds, and any other reported recoveries) over the gross loss amount for the current month. We then weight each transaction's recovery percentage by the transaction's ending pool balance for the current month over the aggregate ending pool balance of all transactions included in the index.

We only allow a transaction to enter the index starting in its fourth month outstanding. During a transaction's first three months, unusually high or low recoveries are reported, leading to a spike in the composite figures. Previously, we often excluded recovery rates in the first two months of a deal's life because of negative recovery rates (resulting from recoveries exceeding gross losses).

How do you calculate the monthly 60-plus-day delinquency rate?

We calculate delinquencies by taking each transaction's 60-plus-day delinquency amount over the ending pool balance for the current month. We then weight each transaction's 60-plus-day delinquency percentage by the transaction's ending pool balance for the current month over the aggregate ending pool balance of all transactions included in the composite.

We only allow a transaction to enter the composite starting in its fourth month outstanding. During the transaction's first three months, zero or lower delinquencies are reported, which dilutes the composite figures.

What is the ALSI?

Our Auto Loan Static Index (ALSI) monitors the credit performance of securitizations that were originated in the same year on a weighted average basis. The number of months displayed for each vintage is generally determined by the last point that all securitizations for that time period have a data point. We calculate the prime and subprime ALSI CNLs by taking the weighted average of the CNLs of the transactions that were completed in the same time period (generally a year). Each transaction's CNL is weighted by its initial pool balance over the aggregate initial pool balance of all the transactions included in the index for that period. In the subprime ALSI, transactions from Byrider Finance LLC (doing business as CarNow Acceptance Corp.), Credit Acceptance Corp., and DriveTime Automotive Group Inc. are excluded because they do not have the typical indirect auto loan business model.

Which transactions are included in the prime, subprime, and modified subprime composites and indices?

For a list of the transactions included in our prime, subprime, and modified subprime composites and indices, see "U.S. Auto Loan ABS Tracker: March 2019," published May 23, 2019. However, note that we subsequently added S&P Global Ratings-rated transactions that have since closed, most prime transactions that closed and were not rated by S&P Global Ratings from 2016 through the present, and the Santander transactions S&P Global Ratings did not rate.

Related Research

  • U.S. Auto Sector Faces Bumpy Roads Ahead With Rising Recession Odds And Falling Demand, Oct. 16, 2019
  • Fourteen Ratings Raised, One Affirmed On Four Drive Auto Receivables Trust Transactions, Oct. 1, 2019
  • Twenty-Four Ratings Raised And 12 Ratings Affirmed On Eight First Investors Auto Owner Trust Deals, Sept. 27, 2019
  • Speed Bump Ahead: As Auto Loans Accelerate Toward 84 Months, Caution Is Warranted, Sept. 18, 2019
  • Six Ratings Raised, Two Affirmed On Two Santander Drive Auto Receivables Trust Transactions, Sept. 17, 2019
  • Various Rating Actions Taken On 26 Classes From Six Flagship Credit Auto Trust Deals, Sept. 13, 2019
  • Four CPS Auto Receivables Trust Ratings Lowered And Removed From CreditWatch Negative, Sept. 9, 2019
  • U.S. Prime Auto Loan ABS Are Seeing More Back-Loaded Losses As Loan Terms Lengthen, July 30, 2019
  • U.S. Auto Loan ABS Tracker: June 2019, Aug. 22, 2019
  • Subprime Auto Loan ABS Tracker: Losses Have Stabilized, But Renewed Growth Bears Watching, April 29, 2019
  • The Severity Of Subprime Auto Loan Delinquencies Is In The Eye Of The Beholder, March 18, 2019
  • 10-Year Retrospective: Changes In U.S. Auto ABS In The Decade Since The Great Recession, Feb. 15, 2019
  • Is There Extension Tension In U.S. Subprime Auto Loan ABS? Nov. 29, 2018

This report does not constitute a rating action.

Many participants in the U.S. auto lending industry have received inquiries from regulatory bodies relating to the origination, underwriting, servicing, and securitization of auto loans. At this time, we do not anticipate that these inquiries will affect our ratings of auto loan ABS transactions. However, we will continue to evaluate developments in these areas as they relate to our ratings of auto loan ABS transactions and will update our views as we deem appropriate.

Primary Credit Analyst:Timothy J Moran, CFA, FRM, New York (1) 212-438-2440;
timothy.moran@spglobal.com
Secondary Contacts:Amy S Martin, New York (1) 212-438-2538;
amy.martin@spglobal.com
Jennie P Lam, New York (1) 212-438-2524;
jennie.lam@spglobal.com
Kenneth D Martens, New York (1) 212-438-7327;
kenneth.martens@spglobal.com
Research Contributor:Reema Kakkar, CRISIL Global Analytical Center, an S&P affiliate, Mumbai

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