- For public issuers, monthly extension rates declined for the fourth consecutive month in August due to the unemployment rate dropping to 8.4% from 10.2%. However, half of the 144a subprime issuers reported an increase.
- Due to borrowers coming to the end of their forbearance period, prime loans that remained in extension status as of the end of August declined over 40% to 0.99% from 1.71% in July, and for public subprime issuers, they declined 34% to 7.88% from 11.90%.
- The level of 60-plus-day delinquencies for previously extended loans whose deferral periods have ended increased to 1.58% (from 1.29%) and 4.27% (from 3.46%) for the public prime and subprime segments, respectively, as of August month end. Despite mounting delinquencies on these loans, more are being repaid in full than are defaulting.
Extensions in U.S. public auto loan asset-backed securities (ABS) declined for the fourth consecutive month in August, based on loan-level data filed with the SEC. Across the 17 prime shelves tracked by S&P Global Ratings', extensions dropped 27% to 0.63% from 0.86% in July. For the four subprime shelves in our analysis, extensions decreased 39% to 3.22% from 5.29% in August. Of note, the balance of loans remaining in extension status decreased 42% to 0.99% for prime loans (from 1.71% in July) and 34% for subprime loans to 7.88% (from 11.90% in July). This is an especially informative metric given that many of the prior months' extensions were for multiple months--four months at a time in some cases.
The record-level of extensions resulting from the pandemic-induced recession has been distorting traditional performance metrics, causing losses and delinquencies to be lower than otherwise (see "U.S. Auto Loan ABS Tracker: August 2020 Performance," published Oct. 14, 2020). In order to obtain an early indication of the likely performance of these formerly extended loans, our August extension report also tracks payment and delinquency behavior of loans that have emerged from their forbearance periods.
Most Public Issuers Reported Lower Extensions in August, But Half Of The Private 144a Subprime Issuers Reported Increases
All of the public prime issuers reported lower extensions in August compared with July, except Ally (see chart 2). Ally's extensions increased approximately 31% to 0.83% from 0.64%. The data, however, indicate that most of these extensions included the receipt of at least a partial payment.
Similarly, the four public subprime issuers (AmeriCredit, Santander DRIVE (deep-subprime shelf), Santander SDART, and World Omni's Select 2019-A transaction) reported lower extensions month over month (see chart 3). However, five of the 10 144a nonpublic issuers increased their extensions. CPS' extensions increased 22% to 3.49% from 2.86%, Exeter's increased 13% to 4.55% from 4.01%, and Westlake's increased 13% to 4.35% from 3.86%. Exeter's and Westlake's extensions now exceed those of DRIVE (3.86%), whose monthly extension levels had been the highest in the group for April, June, and July. UAC and Avid also reported measurable increases month over month. (For the 144a issuers in chart 3, we used their servicing report data.)
One-Month Extension Loses Ground
The one-month extension was the most popular extension period in August for 10 of the 21 public shelves, down from 13 in July. The next most common extension term remains two months (see chart 4A).
Nearly 50% Of Prime Loans Receiving An August Deferral Made Some Form Of Payment In The Same Month
While the majority of the obligors in the prime and subprime categories who received an extension in August made no payment (53% and 61%, respectively), 47% and 39% (in dollar terms), respectively, made some form of payment (see chart 4B).
Ally reported the greatest success in obtaining some form of payment from those to whom it granted an extension. Approximately 97% of the loans it extended in August had an obligor who made a payment within the month (generally at the same time the extension was granted). However, 78% of these payments were only partial payments, not full monthly payments. VW and California Republic Bank had the highest rate of obligors who received an extension in August who also made a full payment, at 38% for both. Payments are often received concomitantly with extensions when the borrower is behind on multiple payments. For example, if the borrower is behind on two payments and the third payment is coming up, the lender may give the borrower, upon request, an extension on the third payment as long as they make the first payment (and meet the lender's other criteria, as appropriate).
Percentage Of Loans In Active Extension Status Down From July
The percentage of prime loans in active extension status for August was 0.99% (on a dollar basis), down from 1.71% in July. Ally had the largest percentage decrease (81%), and no longer has the highest percentage of loans in extension status. As of the end of August, VW held that dubious title with 2.53% of its loans remaining in extension status. Since their most common deferral period from May to August has been three months, it isn't surprising that they have more loans remaining in forbearance. CapOne and Hyundai have the lowest percentage of loans in extension of 0.41% and 0.51%, respectively.
The percentage of subprime loans of public issuers in active extension status for August was 7.88%, a 34% improvement from 11.90% in July. World Omni Select had the largest percentage decrease, dropping by 56%, although Santander's DRIVE shelf had the largest absolute decrease, declining by more than six percentage points month over month. DRIVE remains the highest at 10.08%, while Santander's SDART shelf currently has 7.61% in extension for August.
The Majority Of Loans Extended Since March Have Successfully Come Out Of Extension Status
We are tracking the loans that have been extended from March through August and have bifurcated them into two major buckets with subcategories within those groups, as shown below.
Active extension status (as shown in blue in charts 7 and 8):
- New extension in August;
- Continues to be in extension in August; and
- Received a new extension in August, a previous extension period having ended.
No longer in extension status:
- Extension period expired and loan still outstanding;
- Paid off or otherwise removed from the pool; and
- Charged off (for delinquencies, see charts 9, 10, and 11 below).
The majority of extended loans (from March to August)--86% in the prime sector (up from 82% in July) and 76% (up from 64%) for public subprime deals--have come out of extension status and are still outstanding (see charts 7 and 8). Prime issuers with the highest rate of extended loans exiting extension status and remaining outstanding are World Omni (90%), CarMax (89%), Hyundai (88%), and California Republic Bank (88%). USAA and VW have the least with 62% and 70%, respectively, owing to their longer-than-average extension periods.
In subprime, the percentage of loans that have come out of extension status and remain performing are 89% for World Omni Select, 77% for SDART, 75% DRIVE, and 73% for AmeriCredit.
With more months of data, it's quickly becoming clear that more previously extended loans are being repaid in full or repurchased from the pools than are defaulting. In August, 5.94% of prime loans that had previously been extended had (on a cumulative basis) been retired or repurchased; whereas only 0.43% (on a cumulative basis) had been charged off. Lenders are generally required to repurchase loans from their pools that have extended beyond the maximum allowed under their transaction documents. This is likely contributing to the high pay-off rate. We view this as a positive credit factor because investors are no longer exposed to the credit performance of these previously extended loans, which are likely to perform worse than non-extended loans. However, investors are exposed to the servicer's financial wherewithal to make these repurchases.
In subprime, previously extended loans (from March to August) that have charged-off increased to 0.90%, up from 0.43% in July. DRIVE had the highest charge-off rate on previously extended loans so far of 1.02%. However, nearly 3% of previously extended loans have been paid in full or repurchased.
Of the subprime loans remaining in extension status at the beginning of August, approximately 10% were re-extended during the month (see the light blue section of the bars in charts 7 and 8). This is 2.8x the re-extension rate in prime of 3.5%. DRIVE and SDART had the highest re-extension rates of 12.71% and 11.03%, respectively, while World Omni Select and AmeriCredit had only 3.29% and 1.35%, respectively.
Delinquencies Of Previously Extended Loans Increasing
The vast majority of loans that have come out of extension status--80% and 59% for prime and subprime, respectively--continue to perform and remain current (see the dark blue section of the lines in charts 9 and 10). Within the prime segment, CarMax has the lowest percentage at 67%, while Nissan has the highest at 96%.
The level of 60-plus-day delinquencies for previously extended loans (from March to August) whose deferral periods have ended was 1.58% (up from 1.29% in July) for the prime segment, and 4.27% (up from 3.46% in July) for subprime as of Aug. 31, 2020. AmeriCredit (5.50%), DRIVE (4.61%), and CarMax (3.63%) had the highest individual levels. USAA (0.13%) and CapOne (0.40%) had the lowest. The rising delinquency levels on previously deferred loans indicate that many of those who received temporary forbearance are still struggling to make their monthly payment obligations (more so in the subprime segment).
While delinquencies on previously extended loans remain low, they are growing month to month (see chart 11). Prime 60-plus-day delinquencies on previously extended loans rose 23% to 1.58% from 1.29% as of July. The 1.58% level was 8.2x the level of 60-plus-day delinquencies (DQs) on non-extended loans (0.19%) as of August month end.
Across public subprime transactions, 60-plus-day DQs increased 23% to 4.27% from 3.46%, which was 1.7x the level of 60-plus-day DQs for non-extended subprime loans as of August month end (2.53%). We view rising delinquencies as an early warning sign that losses are also poised to rise.
Payment Behavior Of Previously Extended Loans That Are Still Outstanding
For the prime shelves in August, an average of 71.03% of loans no longer in extension made full payments (up from 68.12% in July), 4.02% made partial payments (up from 3.85%), 10.54% made advance payments (down from 11.60%), and 14.41% made no payments (down from 16.44%). USAA had the highest percentage of full payments at 85.45%, while Fifth Third had the lowest at 62.56%. VW had the highest percentage of loans having made no payment at 18.95%, although Fifth Third and Ally were not far behind at 18.63% and 18.46%, respectively. BMW and Nissan had the highest levels of partial payments at 14.97% and 14.24%, respectively. Nissan and CapOne had the highest levels of advance payments at 13.19% and 12.68%, respectively.
For the subprime shelves in August, an average of 56.96% of loans no longer in extension made full payments, 6.13% made partial payments, 11.78% made advance payments, and 25.13% made no payments. World Omni Select had the highest percentage of full payments at 69.93%, while Santander's DRIVE shelf had the lowest, at 54.84%. DRIVE also had the highest percentage of loans having made no payment, at 27.51%. AmeriCredit had the highest levels of partial payments and advance payments, at 7.48% and 13.35%, respectively.
The above data indicate that the subprime borrowers are having a more difficult time than prime obligors resuming their normal monthly payments, but that is to be expected given their different classifications at loan origination.
Appendix: Data Notes
The data provided for most of the statistics in this article were generated from the Reg AB II loan-level filings, whether or not the underlying deals were rated by S&P Global Ratings. We've reported the information as presented in the issuers' loan-level filings, which may differ from the issuers' monthly servicing report data. Further, there could be differences among the issuers in how they grant extensions and how those extensions affect delinquencies. For example, some issuers may grant extensions that move an account to a less delinquent status, whereas most issuers grant extensions that will cause the account to be reflected as current. In addition, the loan-level data track all extensions, not just COVID-19-related extensions, which is what some issuers are reporting on their monthly servicing reports.
S&P Global Ratings acknowledges a high degree of uncertainty about the evolution of the coronavirus pandemic. The current consensus among health experts is that COVID-19 will remain a threat until a vaccine or effective treatment becomes widely available, which could be around mid-2021. We are using this assumption in assessing the economic and credit implications associated with the pandemic (see our research here: www.spglobal.com/ratings). As the situation evolves, we will update our assumptions and estimates accordingly.
- U.S. Election: Promises, Policy, And The Potential Effects On The Economy And Corporate Credit, Oct. 19, 2020
- U.S. Biweekly Economic Roundup: U.S. Consumer Spending Continues To Outperform Expectations, Oct. 16, 2020
- U.S. Auto Loan ABS Tracker: August 2020 Performance, Oct. 14, 2020
- To Pay Or Not To Pay: Navigating Through U.S. ABS Auto Loans As They Roll Off Extension Status, Aug. 14, 2020
- Though Still Elevated, Drops In May Extensions Are The First Signs Of A Possible Road To U.S. Auto Loan ABS COVID-19 Recovery, July 16, 2020
- Will Spring U.S. Auto Loan Extensions Bring Summer Payments? June 4, 2020
- While Stay-At-Home Orders Clear Traffic, U.S. Auto Loan Extensions Rise, April 30, 2020
- The Potential Effects Of COVID-19 On U.S. Auto Loan ABS, March 26, 2020
The authors would like to thank Bushra Dawawala for her research contributions to this report.
This report does not constitute a rating action.
|Primary Credit Analysts:||Amy S Martin, New York (1) 212-438-2538;|
|Timothy J Moran, CFA, FRM, New York (1) 212-438-2440;|
|Secondary Contact:||Deegant R Pandya, New York (1) 212-438-1289;|
No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.
Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.
To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw or suspend such acknowledgment at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.
S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process.
S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), and www.ratingsdirect.com and www.globalcreditportal.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees.
Any Passwords/user IDs issued by S&P to users are single user-dedicated and may ONLY be used by the individual to whom they have been assigned. No sharing of passwords/user IDs and no simultaneous access via the same password/user ID is permitted. To reprint, translate, or use the data or information other than as provided herein, contact S&P Global Ratings, Client Services, 55 Water Street, New York, NY 10041; (1) 212-438-7280 or by e-mail to: firstname.lastname@example.org.