Keeping Watch


Everyone seems to agree that it’s only a matter of time before competition among lenders leads to weaker auto loan underwriting, and, eventually, to an increase in credit losses.

As I explain in my cover story, there’s also a consensus that the structural support in auto loan securitizations are more than sufficient to withstand any losses incurred by collateral, at least for now.

So it’s interesting that ratings agencies are being extra careful to flag the potential risks this far ahead of time. Fitch Ratings issued two special reports on the auto ABS sector, one warning about the dangers of competition among subprime lenders and another pointing to a recent weakening in the performane of prime deals. Moody’s Investors Service also felt compelled to assure investors that falling used car prices should not be a concern for auto lease ABS, since they’re not likely to slow down the rate at which leases are prepaid.

Mark Risi, a senior director at Standard & Poor’s, provides further detail about the credit enhancement in subprime auto deals in an Observation. As a result, S&P does not expect the deterioration in collateral performance this year will impair ratings on these deals.

Ratings agencies are also taking care to flag risks in proposed offerings of private-label mortgage-backed securities. Since the financial crisis, issuance of private-label RMBS has been dominated by Redwood Trust, which uses a rep and warranty framework established by the American Securitization Forum. But both Fitch and Moody’s are concerned about weaknesses in the rep and warranty frameworks in recent deal proposals they’ve received.

John Hintze takes us to Brazil, where structured finance issuance is expected to pick up again after contracting sharply in 2012 amid regulatory changes and an economic slump.
Felipe Ossa checks in with Russian RMBS, a market that is attracting new entrants, but only for ruble-denominated deals.

Nora Colomer writes that aircraft least securitization has the potential to plug a yawning financing gap for non-U.S. airlines, which have traditionally relied on European banks.

Karen Sibayan looks at what’s driving call activity in collateralized loan obligations. Tight spreads on new deals is encouraging equity holders of deals issued just a couple of years ago to dissolve them in order to take advantage of cheaper financing now available.

On the regulatory front, John speaks with investors about the relative merits of different options available for meeting risk retention requirements for RMBS in rules proposed a year and a half ago. A final rule is expected soon.