The FINANCIAL — New York-26 September 2011: Four years after the start of a debilitating economic crisis, traditional U.S. consumer ABS ratings have demonstrated and will maintain exceptional stability should the economy double-dip back into recession, according to Fitch Ratings in a new report.
Analysis by Fitch shows that roughly 99% of all investment grade U.S. credit card ABS either stayed investment grade, were upgraded or paid in full between summer 2007 (viewed by many as the launch of the economic crisis) and the middle of this year. In addition, some 95% of all investment grade U.S. auto ABS were either paid in full, upgraded, or maintained their ratings. Further analysis shows that in the event of a double dip scenario, credit cards and auto loans would maintain similar transition rates.
The underlying reason is that these traditional sectors have waded through multiple recessions since the 1980s. 'Consumer ABS ratings have been battle-tested several times over the last 20 years,' said Managing Director Michael Dean.
Student loans, meanwhile, saw relatively higher ratings volatility, with approximately 75% staying investment grade or paying in full. It should be noted, however, that the more volatile student loan results were largely influenced by changes Fitch made to its FFELP methodology and worse than anticipated default performance in private student loan ABS. The changes, as expected, primarily impacted lower-rated FFELP tranches and underperforming private student loan ABS. The good news is that with those actions now complete, future transition rates for both FFELP and private student loan ABS transition rates would likely improve.
'Consumer ABS has long benefited from healthy credit enhancement and a penchant for not straying from plain vanilla collateral' said Dean. 'Going forward, there appears to be no impetus for ABS originators to fix what isn't broken.'
Discussion about this post