Subprime Auto Amy Martin Lead Analyst – Auto ABS Senior...
Transcript of Subprime Auto Amy Martin Lead Analyst – Auto ABS Senior...
Nocontentbelowtheline Nocontentbelowtheline
Subprime Auto Loan ABS Update Annual Non-Prime Auto Financing Conference NAF Association
Copyright © 2017 by S&P Global. All rights reserved.
Plano, Texas June 1, 2017
Amy Martin Lead Analyst – Auto ABS Senior Director Structured Finance Ratings
Nocontentbelowtheline Nocontentbelowtheline
Agenda
2
• Size Of The Auto Loan And Subprime Auto Loan ABS Markets
• Subprime Auto Finance Trends
• Collateral Characteristics Of Subprime Auto Loan ABS
• Deterioration In Subprime Auto Loan ABS Collateral Performance (Vintage Analysis)
• Comparison of 18 Issuers To S&P’s Subprime Auto Loan Static Index
• Subprime Auto Loan ABS Ratings Performance Remains Stable
• Outlook
Nocontentbelowtheline Nocontentbelowtheline
Auto ABS Issuance Tracks Auto Sales
3
Source:S&PGlobalRa6ngs
4.4 4.5 3.2 2.3 3.4 1.7 4.7 6.8 14.3 13.3
5.1 8.5 8.3 9.7 10.7
14.0 15.9 17.5 14.3 15.2
37
54
70
88
100
87
74
103
89
74
54
45 47 49
67 61
69 68 67 70
0
2
4
6
8
10
12
14
16
18
0
20
40
60
80
100
120
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Est
Aut
o S
ales
(Mill
ion
Uni
ts)
$ B
illio
n
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)
Nocontentbelowtheline Nocontentbelowtheline
Subprime Dollar Issuance
4
% Of Total Retail Auto ABS
$21.6
$16.3
$2.2 $1.2
$8.7
$11.6
$18.4 $17.6
$20.0
$23.3 $23.1
$7.9
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
$0
$5
$10
$15
$20
$25
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 YTD
Bill
ion
$
Issuance ($) % of Total Dollar Issuance
Source:S&PGlobalRa6ngs
Nocontentbelowtheline Nocontentbelowtheline
Top 3 Subprime Issuers As a % of Subprime Auto Loan ABS
5 Source:S&PGlobalRa6ngs
67.1%
72.1%
100.0%
90.6%
95.3%
89.7%
79.2%
73.7%
65.3%66.8%
57.6%
50.0%
55.0%
60.0%
65.0%
70.0%
75.0%
80.0%
85.0%
90.0%
95.0%
100.0%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 20161 CapitalOne AMCAR AMCAR AMCAR Santander Santander Santander Santander Santander
($7.2bn)Santander($9.8bn)
Santander($6.7bn)
2 AMCAR CapitalOne CPS DriveTime AMCAR GMFinancial
GMFinancial
GMFinancial
GMFinancial($4.2bn)
GMFinancial($4.4bn)
GMFinancial($4.9bn)
3 HSBC DriveSantander
CAC Pres6ge DriveTime DriveTime CPS Exeter Exeter($1.7bn)
Exeter($1.4bn)
Flagship($1.6bn)
Nocontentbelowtheline Nocontentbelowtheline
Subprime Auto Loan ABS 2016
6
46 Transactions, $23.07B
Honor, 0.4%
JD Byrider, 0.5%
Sierra, 0.6%
Tidewater, 0.7%
GLS, 0.9%
UACC, 1.4%
First Investors, 1.9%
Prestige, 2.8%
OneMain, 3.0%
CAC, 3.0%
ACA, 3.7%
Exeter, 4.8%
CPS, 5.2%
DriveTime, 6.6% Westlake, 7.0%
Flagship & CarFin, 7.1%
GM Financial, 21.2%
Santander & Drive, 29.2%
UACC–UnitedAcceptanceCreditCorpora0onCAC–CreditAcceptanceCorpora0onCPS–ConsumerPor6olioServicesACA-AmericanCreditAcceptance
Source:S&PGlobalRa6ngs
Nocontentbelowtheline Nocontentbelowtheline
Subprime Auto Finance Trends
7
• Industry has remained intensely competitive. In response some lenders liberalized their credit standards, loosened verification requirements (POI), and lowered their pricing requirements. • Looser credit policies and lower discounts were competitive responses
during prior intensely competitive periods. In our view, foregoing income verifications to the magnitude that has been reported in Reg AB II loan level filings started only 2.5 years ago and is isolated. Large lenders are using a risk-based approach to POI.
• Loan losses have increased for 2015 and 1st half 2016 originations. Lower recovery rates have contributed to higher losses too.
• Lender profitability weakened in 2015 and 2016 with some reporting losses.
• More recently, some lenders have started to self-correct and are tightening their lending standards.
Nocontentbelowtheline Nocontentbelowtheline
Subprime Collateral Trends (ECNL >7.5%)
8
120 121
114
112 112 113
114 115 113
112
110
104
106
108
110
112
114
116
118
120
122
124
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Q1
Loan-To-Value (%)
Source:S&PGlobalRa6ngs
594 594 594
574 575 573
577 577
572 574 575
560
565
570
575
580
585
590
595
600
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Q1
FICO®
16.3
16.7 16.6
17.8
16.3
17.0
16.6 16.7
17.3
16.8
17.5
15.5
16
16.5
17
17.5
18
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Q1
WAAPR (%)
Nocontentbelowtheline Nocontentbelowtheline
Subprime Collateral Trends (ECNL >7.5%)
9
69.0
80.7 85.5
73.6 77.5 76.9
81.3 79.2 83.4 83.8 84.5
0
10
20
30
40
50
60
70
80
90
% of Loans With Original Term > 60 months
Source:S&PGlobalRa6ngs
66.9
69.2
69.7
68.0
67.4 67.1
68.0
67.3
68.6
67.9
68.9
65
65.5
66
66.5
67
67.5
68
68.5
69
69.5
70
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Q1
Weighted Average Original Maturity
Nocontentbelowtheline Nocontentbelowtheline
Subprime Auto Loan ABS Performance
10
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43
Cum
ulat
ive
Net
Los
s (%
)
Subprime Cumulative Net Losses (%) By Vintage
2008 2009 2010 2011 2012 2013 2014 2015 Modified 2015 Q1 2016 Q1 2016 Modified Q2 2016
2010
2011
2009
2008
2012
2014
2015
Q1 2016
Modified 2015
Q1 2016 Modified
Source:S&PGlobalRa6ngs
Nocontentbelowtheline Nocontentbelowtheline
Modified Subprime Cumulative Recoveries (%)
11
Source:S&PGlobalRa6ngs
2013
2014 2015
Q1 2016
Q2 2016
Q3 2016
20.00
25.00
30.00
35.00
40.00
45.00
50.00
55.00
60.00
1 4 7 10 13 16 19 22 25 28 31 34
Mod
ified
Sub
prim
e C
umul
ativ
e R
ecov
erie
s (%
)
2013 2014 2015 (iv) Q1 2016 (i) Q2 2016 (ii) Q3 2016 (iii)
(
Nocontentbelowtheline Nocontentbelowtheline
2015 Cumulative Net Losses by Issuer - Subprime
12
Source:S&PGlobalRa6ngs
SubprimeIndex
AmericanCreditAcceptance
AmeriCredit
CarFinance
CPS
Drive
Exeter
FirstInvestors
Flagship
Pres6ge
SDART
UACC
Westlake
JDByrider(CarNow)
-
5
10
15
20
25
30
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27
Percen
t
Months
SubprimeIndex-2015
AmericanCreditAcceptance
AmeriCredit
CarFinance
CPS
Drive
Exeter
FirstInvestors
Flagship
Pres6ge
Santander(SDART)
UACC
Westlake
JDByrider(CarNow)
Nocontentbelowtheline Nocontentbelowtheline
2016 Q1 CNLs by Issuer - Subprime
13
Source:S&PGlobalRa6ngs
SubprimeIndex
ACA
AmeriCredit
CPS
Drive
Exeter
FirstInvestorsFlagship
Tidewater
Pres6ge
SDART
UACC
Westlake
DriveTime
-
2
4
6
8
10
12
14
16
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
Percen
t
Months
SubprimeIndex-Q12016
AmericanCreditAcceptance
AmeriCredit
CPS
Drive
Exeter
FirstInvestors
Flagship
Tidewater
Pres6ge
Santander(SDART)incl.notrated
UACC
Westlake
DriveTime
Nocontentbelowtheline Nocontentbelowtheline
S&P-Rated IG Subprime Auto Loan ABS Are Well Protected
14
• ‘AAA’ credit enhancement levels are high, often covering cumulative defaults of 85%-95% (with recovery rates ranging from 30% to 40%).
• Auto loan ABS delever quickly and c/e levels as a % of the o/s collateral grow due to the sequential nature of the deals.
• C/E levels have risen in line with higher ECNLs (see chart)
• We’ve been selective when deciding which issuers we can assign ratings to and whether we should cap those ratings given operational concerns.
• Our rating sensitivity criteria prevents us from assigning ‘AAA’ and ‘AA’ ratings if they would be downgraded under a ‘BBB’ moderate stress below ‘AA’ and ‘A’, respectively, over 1 year and below ‘BBB’ and ‘BB’, respectively, over 3 years.
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
AAAC/E&ECNLExpecta0ononS&PRatedTransac0ons
AAA'ini6alC/EAAA'break-evenWAOriginalECNL(thosew/AAA)
Nocontentbelowtheline Nocontentbelowtheline
Subprime Auto Loan Rating Actions*
15
Year Upgrades Downgrades
2004 6 0
2005 0 0
2006 4 0
2007 13 0
2008 5 0
2009 29 0
2010 4 0
2011 34 0
2012 50 0
2013 133 0
2014 57 0
2015 169 0
2016 244 0
YTDMarch31,2017 34 0
Total 782 0*Theupgrades/downgradesdonotincludethosebasedonra6ngchangesonthebondinsurer,ifany.Allra6ngac6onsinthetablearecredit-related.
Nocontentbelowtheline Nocontentbelowtheline
Subprime Auto Finance Outlook
16
• Lower used vehicle values will continue to put upward pressure on losses. • Higher interest rates will impact borrowing costs and squeeze profit margins. • Providers of capital, including warehouse lenders, will become more selective.
Private equity investors are nearing the end of their holding periods and are looking for exit strategies.
• Consolidations and portfolio sales are likely to increase. History has shown us that these portfolios can be successfully transitioned.
• 2017/2018 will test whether lenders increase/decrease their use of risk-based income verifications. Reg AB II loan level reporting for public auto loan ABS has focused attention on this topic.
• Consumer regulatory oversight by various federal and state agencies could result in legal actions and monetary settlements against companies in this industry.
• Despite negative headwinds, THE SKY IS NOT FALLING. Historically after several years of loan growth and competition-induced weaker lending standards, credit losses rise and some companies fail. Well-managed companies tighten lending standards, secure adequate funding/liquidity, manage costs, focus on collections, remain compliant with all laws, and prepare for a rainy day.
Nocontentbelowtheline Nocontentbelowtheline
Copyright © 2016 by Standard & Poor’s Financial Services LLC. All rights reserved.
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.
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 acknowledgement 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.
Australia Standard & Poor's (Australia) Pty. Ltd. holds Australian financial services license number 337565 under the Corporations Act 2001. Standard & Poor’s credit ratings and related research are not intended for and must not be distributed to any person in Australia other than a wholesale client (as defined in Chapter 7 of the Corporations Act).
STANDARD & POOR’S, S&P and RATINGSDIRECT are registered trademarks of Standard & Poor’s Financial Services LLC.
17