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The volume of European auto asset backed securities (ABS) issuance
in 2008 will be hard-pressed to repeat the bumper performance of
2007, according to debt ratings agency, Fitch Ratings.
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By the end of the third quarter of last year, European auto
ABS issuance at €11.6bn (£8.7bn) had exceeded the entire volume for
2006 of €10.8bn (£8.1bn). But the stark reversal of trends as the
year rolled into the fourth quarter bodes ill for the year
ahead.
“Issues fell away pretty much in the second half of the year.
Unless the market bounces back, it is unlikely that issuance in
2008 will exceed 2007,” Fitch’s senior director of consumer ABS,
Heather Dyke told Motor Finance.
An overview of European auto ABS transactions by Fitch,
released in November, noted that the current credit crisis has not
affected new car registrations although consumer confidence was
lower in general.
In the final quarter of 2007, only one auto ABS issue for the
European market stood out. In late November, VCL 10 closed a
transaction which raised €970.6m (£727.5m), bringing the estimated
European auto ABS volume for 2007 to approximately €12.6bn
(£9.4bn).
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By GlobalData VCL 10 was the 10th securitisation of auto leases originated
by Volkswagen Leasing GmbH and rated AAA/A+ by Fitch.
According to Dyke, VCL 10 incurred higher transaction costs,
priced at 37 basis points (bpt) above one month Euribor (euro
inter-bank offered rate – the rate at which Euro-zone banks lend to
each other) for the AAA notes. This was a significant increase on
the roughly 10 bpt margin for the AAA notes on previous issues from
the VCL programme
“It was the only publicly placed auto transaction in the
third quarter, reflecting investors’ confidence in the underlying
assets,” Dyke said, noting that European auto ABS have been largely
sold to central banks in the past. “VCL has been able to show their
strength by going out there to sell the transaction.”
Triggered by the deterioration in quality of US residential
mortgages last summer, a general aversion towards structured
finance issues currently prevails in debt markets. This has held
back several new issuances that would have been peddled to
investors in the fourth quarter of last year, had the sentiment not
worsened.
“There are deals that are ready to go in the pipeline but
issuers are reluctant to launch them, waiting for the return of
more favourable market conditions,” Dyke said without disclosing
their volume.
Still, Fitch notes that the fundamentals of the outstanding
European auto ABS which it rates remain stable, with neither
downgrades in ratings nor deterioration in outlook imminent.
Instead, it has been the flagging quality of credit card loans that
has weighed on the consumer ABS segment.
Specifically for UK-originated auto ABS, the market has not
historically seen frequent issuance so the subdued interest does
not signal much of a loss for car financiers here. Unattractive
transaction costs have been the main reason why issuances have been
limited, said Dyke. The most recent issuance to date was the €280m
(£209.9m) transaction by A-Best Three with loans originated by Fiat
Auto Financial Services.
Although auto ABS issues have been popular with investors due
to their simple structure and stable performance track record,
investor appetite for this asset class has become difficult to
predict under such unfamiliar market behaviour brought about by the
credit crunch.
