Subprime Auto Loan ABS Update

Transcription

1 Subprime Auto Loan ABS Update Amy Martin Lead Analyst Auto ABS Senior Director Structured Finance Ratings Ines Beato Director Structured Finance Ratings Copyright 2018 by S&P Global. All rights reserved. Annual Non-Prime Auto Financing Conference NAF Association Fort Worth, Texas May 31, 2018

2 Agenda Size Of The Auto Loan And Subprime Auto Loan ABS Markets Subprime Auto Finance Trends Collateral Characteristics Of Subprime Auto Loan ABS Subprime Auto Loan ABS Collateral Performance (Vintage Analysis) Comparison of Issuers To S&P s Subprime Auto Loan Static Index New Performance Metric Subprime Auto Loan ABS Ratings Performance Outlook 2

3 $ Billion Auto Sales (Million Units) Auto ABS Issuance Generally Tracks Auto Sales U.S. Auto Sales, Auto Lease ABS Issuance and Auto Loan ABS Issuance Auto Lease ABS Issuance ($ Bil) Auto Loan ABS Issuance ($ Bil) Auto Sales (Million Units) Source: S&P Global Ratings 3

4 Billion $ Subprime Dollar Issuance % Of Total Retail Auto ABS $ % $25 $20 $21.6 $16.3 $18.4 $17.6 $20.0 $23.3 $23.1 $ % 30.0% 25.0% $ % $10 $8.7 $11.6 $11.2 $ % 10.0% $5 $2.2 $ % $ YTD Issuance ($) % of Total Dollar Issuance *Est YTD 0.0% Source: S&P Global Ratings *YTD 2018 is estimated through May 31,

5 Top 3 Subprime Issuers As a % of Subprime Auto Loan ABS 100.0% 95.0% 90.0% 100.0% 90.6% 95.3% 89.7% 85.0% 80.0% 79.2% 75.0% 72.1% 73.7% 70.0% 65.0% 60.0% 67.1% 65.3% 66.8% 57.6% 60.5% 55.0% 50.0% CapOne AMCAR AMCAR AMCAR Santander Santander Santander Santander Santander Santander Santander Santander ($7.2 bn) ($9.8 bn) ($6.7bn) ($8.8bn) 2 AMCAR Capital One 3 HSBC Drive Santander CPS DriveTime AMCAR GM Financial GM Financial GM Financial GM Financial GM Financial GM Financial GM Financial ($4.2 bn) ($4.4 bn) ($4.9 bn) ($4.7 bn) CAC Prestige DriveTime DriveTime CPS Exeter Exeter Exeter Flagship DriveTime ($1.7 bn) ($1.4 bn) ($1.6 bn) ($1.9 bn) Source: S&P Global Ratings 5

6 Subprime Auto Loan ABS Transactions, $25.42B Santander & Drive, 34.5% JD Byrider, 0.5% UACC, 0.6% Veros, 0.7% GLS, 0.7% Prestige, 1.3% CIG Financial, 0.7% First Investors, 2.4% CPS, 3.4% GM Financial 18.6% ACA, 3.4% UACC United Acceptance Credit Corporation CAC Credit Acceptance Corporation CPS Consumer Portfolio Services ACA - American Credit Acceptance Source: S&P Global Ratings DriveTime, 7.4% OneMain, 6.1% Flagship 3.87% CAC, 4.5% Exeter, 5.5% Westlake, 5.9% 6

7 S&P s Take On Subprime Auto Finance Trends Credit performance remains weak despite lenders tightening their credit standards. The industry remains intensely competitive despite subprime origination volumes declining in 2016 and Lenders are competing on the basis of price, quick approvals, and limited stipulations. Several subprime auto finance companies are reporting losses due to competitive pricing and higher loan losses, in part due to lower recovery rates. While a few are still building scale to improve margins, others have greatly reduced origination volumes and face liquidity concerns. Some have gone out of business, and we believe others could fail. Private equity and warehouse funding aren t as plentiful as they were earlier in the recovery. Investors have a growing appetite for subprime auto loan ABS. Several issuers have issued B rated classes this year for the first time. 7

8 Subprime Collateral Trends (ECNL >7.5%) FICO Loan-To-Value (%) WAAPR (%) Source: S&P Global Ratings 8

9 Subprime Collateral Trends (ECNL >7.5%) % of Loans With Original Term > 60 months Weighted Average Original Maturity Source: S&P Global Ratings 9

10 Vehicle Depreciation Versus Loan Amortization Amount When amortization of the loan balance is spread out over a longer term, the point at which the obligor gains an equity position in the car is delayed. The point at which the vehicle's value exceeds the loan balance comes later and later in the life of the loan as the loan term lengthens. $25,000 Vehicle Value 48 mth term 60 mth term 72 mth term 78 mth term $20,000 $15,000 $10,000 $5,000 $

11 Longer-Term Subprime Auto Loans Are Leading To More Back-Loaded Losses Longer-term loans affect the timing of losses: losses become more backloaded and extend for a longer period of time. We observed a shift in the loss curve to for the 2011 vintage from for the 2003 vintage. As the chart shows, the loss curve for the 2011 vintage is slower and longer, and its losses extend into year five. 100% Yearly Vintage Loss Curve 80% 60% 40% 20% 0% Vintage 2011 Vintage 11

12 Cumulative Net Loss (%) Subprime Auto Loan ABS Performance S&P s Subprime Auto Loan Static Index - Cumulative Net Losses (%) By Vintage Q Q Source: S&P Global Ratings Q Q

13 Cumulative Net Loss (%) Subprime Auto Loan ABS Performance Modified Subprime Auto Loan Static Index - Cumulative Net Losses (%) By Vintage modified 6.00 Q Q Q Modified 2016 Modified 0.00 Source: S&P Global Ratings Q Modified Modified Modified Q Q Modified Q Q Modified 13

14 Modified Subprime Cumulative Recoveries (%) Q Q Source: S&P Global Ratings (i) 2016 Q Q

15 Percent 2015 Cumulative Net Losses by Issuer - Subprime 40 Subprime Index JD Byrider American Credit Acceptance AmeriCredit 30 CarFinance CPS 25 American Credit Acceptance Drive DriveTime 20 Exeter UACC DriveTime Drive First Investors Exeter CarFinance Westlake CPS Prestige SDART Flagship AmeriCredit First Investors Subprime Index Months Flagship Prestige Santander (SDART) UACC Westlake JD Byrider(CarNow) Source: S&P Global Ratings 15

16 Percent 2016 CNLs by Issuer - Subprime 30 Subprime Index American Credit Acceptance 25 JD Byrider AmeriCredit JD Byrider CPS 20 Drive Exeter 15 Honor DriveTime ACA UACC Sierra First Investors Flagship Foursight 10 5 Drive Exeter Subprime Index Westlake CPS Prestige Tidewater Foursight Honor Tidewater Prestige Santander (SDART) Sierra AmeriCredit First Investors UACC - SDART Flagship Months Westlake DriveTime Source: S&P Global Ratings 16

17 Percent Q CNLs by Issuer - Subprime 14 Drivetime 12 Subprime Index - Q American Credit Acceptance 10 American Credit Acceptance AmeriCredit CPS 8 Drive Drive 6 Santander (SDART) Westlake Exeter Subprime Index Exeter First Investors Flagship 4 First Investors CPS Flagship Santander (SDART) incl. not rated Westlake 2 AmeriCredit DriveTime - Months 1 Source: S&P Global Ratings

18 CNL Pool Factor Performance Analysis CNL Is Only One Factor 16% Cumulative Net Loss (CNL) % of Original Collateral Remaining (Pool Factor) 14% 12% 10% 8% 6% 4% 2% 0% Month 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Month Westlake Automobile Receivables Trust Exeter Automobile Receivables Trust CPS Auto Receivables Trust 2016-A Westlake Automobile Receivables Trust Exeter Automobile Receivables Trust CPS Auto Receivables Trust 2016-A 18

19 CNL Pool Factor Analysis Cumulative Net Loss Relative to Orig. Collateral Outstanding (Pool Factor) Westlake Automobile Receivables Trust Exeter Automobile Receivables Trust CPS Auto Receivables Trust 2016-A 16% 14% Exeter 11% CPS 10% 12% 10% Westlake 8% 8% 6% 4% 2% 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 0% Pool Factor 19

20 Subprime Auto Loan Rating Actions* Year Upgrades Downgrades YTD (as of May 22) Total 1,097 0 *The upgrades/downgrades do not include those based on rating changes on the bond insurer, if any. All rating actions in the table are credit-related. 20

21 S&P s Subprime Auto Finance Outlook Losses will remain under pressure due to lower used vehicle values. Higher interest rates will inflate funding costs and squeeze profit margins. Providers of capital, including warehouse lenders, have become more selective. We re late into the credit cycle. As we ve seen before, after several years of loan growth and competition-induced weaker lending standards, credit losses rise and some companies fail. Consolidations and portfolio sales are likely to increase. History has shown that auto loan portfolios can be successfully transitioned. Auto loan ABS ratings outlook is stable, but subprime non investment grade classes may incur downgrades. The BB and B rated classes have lower loss-absorbing cushions and mild deterioration could result in downgrades. 21

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