Fitch: Prime U.S. ABS Sectors to Remain Immune in 2007.

NEW YORK -- Despite the slowdown in the U.S. housing market, Fitch expects collateral and ratings performance for the majority of U.S. non-mortgage ABS to remain stable through 2007, according to Fitch Ratings in its Global Structured Finance Outlook report for 2007.

"Though the U.S. consumer is walking a thin line with household leverage and debt service burdens remaining at historically high levels," said Director Kevin D'Albert. "Non-mortgage related collateral and ratings has proven resistant to declining home prices, higher interest rates and volatile energy prices. Fitch expects prime credit card and auto ABS to continue to demonstrate immunity to negative rating actions well into 2007. Additional economic stress, excessive competition in the credit card lending arena and challenges faced by US auto manufacturers may begin to affect collateral performance later in '07.

"The credit card ABS sector has exhibited strong performance on a year-over-year basis. However, Fitch expects delinquencies and losses to slowly trend upward towards their long-term historical averages as the benefits of bankruptcy reform disappear and consumers find it increasingly difficult to squeeze equity from the homes to meet their financial obligations," said D'Albert. These factors are beginning to cause late payments to increase and monthly payment rates to slow as consumers are increasing their revolving exposure. Strong excess spread levels should cushion deals against higher losses in the short term. However, tiering among issuers may emerge.

The ripple effect of increased demands placed on the consumer also extends to auto-related ABS performance, which has begun to soften in segments such as dealer floorplan and rental fleet ABS. These conditions are likely to persist in 2007, also due to ongoing challenges facing the U.S. auto manufacturers.

In terms of Commercial ABS, performance in the equipment lease, utility tariff and tobacco settlement bonds is expected to remain strong, while the outlook for both franchise loan and small business loan ABS remains clouded by smaller net recoveries and longer-than-anticipated recovery times on certain transactions. Elsewhere, despite record passenger airline traffic volume, improved credit profiles of the legacy U.S. carriers and a significant pick-up in lease rates, increased financial leverage of carriers, and oil price volatility, will continue to weigh on aircraft ABS.

Fitch's 'Global Structured Finance: 2007 Outlook and 2006 Review' includes asset performance and rating volatility forecasts for the global ABS, CMBS, RMBS and CDO sectors in 2007. The report also evaluates the impact of broader macroeconomic trends on the global structured finance markets and gives an overview of asset performance and credit migration trends over the past year. The report is available on the Fitch Ratings web site at www.fitchratings.com.

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