Fitch: Cruise Control for U.S. ABS in 2013; Fiscal Cliff May Hurt Student Loans
U.S. ABS will remain the anchor for all of structured finance in 2013, according to Fitch Ratings in its outlook report for U.S. structured finance. However, one key area to watch in the coming year will be the looming fiscal cliff.
Lower delinquencies and consumer bankruptcies have resulted in credit card chargeoff levels not seen in over 20 years. That said, 'Credit card ABS delinquencies and chargeoff rates will begin to normalize to the tune of 2-3% and 5-6%, respectively in 2013,' said Managing Director and Consumer ABS head Michael Dean. Nonetheless, the proven track of credit card ABS performance will likely lead to increased issuance next year. Additionally, Fitch expects more Canadian credit card issuers to tap into the U.S. market.
Fitch holds a similarly stable outlook for auto ABS. In fact, the rate of rating upgrades figures to increase for auto ABS in 2013. This is because more subordinate bond tranches are up for review next year and most have exhibited strong asset performance to date.
The looming fiscal cliff is a concern, though Fitch does not see this being a pre-eminent market mover. Credit card and auto ABS have been through several economic peaks and troughs and emerged largely unscathed so there is no reason to think that these structures could not withstand a fiscal cliff-induced recession. 'Consumer and auto ABS may be the only asset types that would still see rating upgrades even if unemployment were to rise again,' said Dean. Similarly, 'a fiscal cliff-induced recession would likely pressure auto ABS asset performance, but not nearly to levels observed in 2007,' said John Bella, Managing Director and Head of U.S. Auto and Commercial ABS.
The lone outlier, however, would be FFELP student loans. The prospect of going over the fiscal cliff presents substantial headwinds to student loan ABS given its close linkage to the United States' credit rating (currently rated 'AAA' with a Negative Outlook). Another factor clouding the outlook for student loans is higher than anticipated default and rating volatility for many pre-crisis private student loan deals.
Additional information is available in Fitch's report, 'U.S. Structured Finance 2013 Outlook: Tailwinds Prevailing Despite Potential Drag', available at 'www.fitchratings.com or by clicking on the link at the end of the press release.
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U.S. Structured Finance 2013 Outlook: Tailwinds Prevailing Despite Potential Drag
Head of U.S. Consumer ABS
Fitch Ratings, One State Street Plaza, New York, NY 10004
Head of U.S. Auto and Commercial ABS
Additional information is available at 'www.fitchratings.com'.
Sandro Scenga, +1-212-908-0278 (New York)