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ABS Spotlight - July 2014 Summary

Core Content Overview

This edition of ABS Spotlight provides insights into various asset-backed securities (ABS) sectors in the US, including auto loans, credit cards, student loans, and commercial/other ABS. It highlights market trends, performance metrics, and regulatory developments that affect these sectors.

Key Sectors and Their Highlights

Autos

• Credit Union Securitization Rule: The NCUA approved a rule that allows credit unions to securitize auto loans, potentially boosting their growth in the sector. This rule includes safe-harbor protections similar to those of the FDIC.
• Credit Union Auto Loan Performance: Credit unions have shown strong loan quality, with lower repossession and delinquency rates compared to banks and captives. Their portfolio growth in auto loans has been robust, reaching 16% market share in Q1 2014.
• Subprime Auto Lenders: Subprime lenders have become more cautious in 2014, raising interest rates and improving credit scores for used car loans. However, they still offer longer terms and larger loan amounts, increasing potential risk.
• Prime Auto Loan ABS: The May 2014 net loss rate for prime auto loans increased slightly to 0.33% from 0.30%, while the 60+ delinquency rate decreased to 0.34% from 0.36%. These metrics indicate a stable but improving environment for prime auto ABS.
• Market Share Trends: Banks have the largest share (35%) in the auto loan market, followed by captives (26%) and credit unions (16%). The trend shows a shift in market share over time, with credit unions growing rapidly.
• Navient Career Training Loans: Navient's first ABS deal is backed by Career Training loans, which have unique borrower profiles (older, employed, and focused on vocational training) compared to traditional student loans. These loans have similar default rates to Navient's Signature loans.

Credit Cards

• Credit Card Network Impact: The choice of credit card network (e.g., VISA, MasterCard, American Express, Discover) does not significantly affect the performance of credit card ABS, especially if the sponsor is in receivership. The key factor is the servicing platform.
• Servicing Platforms: Third-party platforms like First Data and TSYS are more likely to facilitate a smooth servicing transfer in case of insolvency. American Express and Discover, which own their networks, may offer more attractive portfolios if their networks remain profitable.
• Delinquency and Charge-off Rates: In June 2014, delinquency rates hit a new low of 1.50%, and charge-off rates dropped to 2.81%, showing strong credit quality in securitized credit card pools.
• Performance Trends: Early-stage delinquencies have been declining since the credit crisis, reaching a historic low of 0.42% in May 2014. Roll rates also continue to improve, though the effect on charge-offs is marginal.

Student Loans

• Navient's Career Training Loan ABS: This is the only ABS deal fully backed by Career Training loans. These loans are used for non-degree-granting technical and vocational education, with a different borrower demographic than traditional student loans.
• Regulatory Impact: The US Department of Education's plan may lead to some non-profit student loan servicers exiting the market, reshaping the sector.

Commercial & Esoteric ABS

• Dell Equipment-Backed ABS: Dell issued its first equipment-backed ABS, signaling a new trend in the sector.
• Tobacco ABS: The Reynolds buyout of Lorillard increases concentration risk in tobacco settlement bonds. However, states' enforcement settlements have reduced the "cliff risk" in tobacco ABS.
• Solar YieldCo Rating: Moody's issued its first rating for a solar YieldCo, TerraForm Power Operating LLC, indicating growing interest in renewable energy ABS.
• Transportation Outlook: The outlook for transportation ABS is neutral to good, reflecting stable performance and market conditions.

Key Insights and Trends

• Credit Union Securitization: Credit unions are well-positioned to enter the auto loan securitization market due to strong loan performance and growing portfolio.
• Subprime Caution: Subprime auto lenders are becoming more selective, with rising credit scores and interest rates, but still offering extended terms to weaker borrowers.
• Credit Card Stability: Credit card ABS performance remains strong, with declining delinquencies and charge-offs, driven by economic recovery and improved credit quality.
• Servicing Risks: The choice of servicing platform is critical in the event of insolvency, as it can impact the smooth transition of receivables and investor losses.
• Student Loan Innovation: Navient's Career Training loan ABS represents a new approach in the student loan market, with unique characteristics and performance similar to traditional student loans.
• Tobacco ABS Outlook: While the buyout of Lorillard increases concentration risk, diligent enforcement settlements are reducing payment cliff risk.
• Market Outlook: The overall outlook for the US ABS market remains positive, with stable performance and evolving structures in different sectors.

Additional Sections

• Econ Dashboard & Commentary: Provides economic analysis relevant to the ABS market.
• Surveillance Recap: Summarizes recent monitoring and risk assessments.
• Issuance Toteboard: Lists recent ABS issuances and their details.

Key Links and Resources

• Performance Indices:

  • Prime Auto ABS
  • Credit Card ABS
  • Private Student Loan ABS

• 2014 Outlooks:

  • Auto Loan ABS
  • Credit Card ABS
  • Private Student Loan ABS
  • FFELP Student Loan ABS
  • Commercial & Esoteric ABS

• Performance Summaries:

  • Auto Loan ABS
  • Auto Lease ABS
  • Auto Floorplan ABS

• Quick Check Portals:

  • ABS Quick Check
  • Structured Finance Quick Check

Conclusion

The July 2014 issue of ABS Spotlight underscores the continued stability and improvement in the US ABS market. Credit unions are poised to expand in the auto loan sector, while credit card ABS performance remains robust. Student loan ABS is evolving with new structures like Career Training loans, and commercial/other ABS sectors are showing signs of innovation and growth. Regulatory changes and market dynamics are shaping the future of these asset classes, with Moody's providing critical insights and ratings to support investor decision-making.