Fitch: U.S. Auto Lease ABS Ratings Facing Stiff Headwinds.NEW YORK New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of -- The recent announcements by the financing arms of Chrysler, GM and Ford regarding the discontinuation dis·con·tin·u·a·tion n. A cessation; a discontinuance. Noun 1. discontinuation - the act of discontinuing or breaking off; an interruption (temporary or permanent) discontinuance or overhaul of their auto lease programs underscores the impact of rapidly declining vehicle resale values, according to Fitch Ratings Fitch Ratings An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris. . Earlier this week Chrysler Financial, GMAC GMAC General Motors Acceptance Corporation GMAC Graduate Management Admission Council GMAC Give Me A Call GMAC Genetic Manipulation Advisory Committee GMAC Genetic Modification Advisory Committee (Singapore) GMAC Give Me A Chance and Ford Motor Credit announced significant changes to their auto lease businesses with Chrysler Financial suspending their U.S. auto lease program all together. GMAC announced it will stop subsidizing leases in Canada and will eliminate certain lower credit quality borrowers from consideration domestically. Ford announced significant increases in lease rates for certain SUVs and trucks. All three companies indicated that their decision was influenced by the ongoing decay in the resale values of vehicles coming off lease. Coincident with these declines, Fitch is currently completing a review of its auto lease ratings with a focus on the 2007 and 2008 vintages. Fitch currently has 20 public ratings outstanding from 10 transactions representing approximately $7.2 billion in principal outstanding from 2007 and 2008 U.S. captive finance company Captive Finance Company A subsidiary whose purpose is to provide financing to customers buying the parent company's product. Notes: The captive finance company is usually wholly owned by the parent company. issuances. The initial review is expected to be completed over the next two to three weeks. 'As Fitch has noted, dramatic drops in the value of used cars is impacting the entire auto ABS sector, but those declines are having an amplified affect on the performance of auto lease transactions,' said Managing Director and U.S. ABS group head Kevin Duignan. 'Transactions from 2007 and 2008 may not have built enough credit enhancement Credit Enhancement A method whereby a company attempts to improve its debt or credit worthiness. Notes: Credit enhancements take many different forms. An example of a credit enhancement would be conversion rights added on to a debt instrument in order to lower the issuing to offset the potential increase in residual value Residual value Usually refers to the value of a lessor's property at the time the lease expires. residual value The price at which a fixed asset is expected to be sold at the end of its useful life. losses while still maintaining coverage consistent with Fitch's original ratings.' U.S. captive finance companies, in particular, are experiencing higher than expected residual value losses due to the steep drop in the values of vehicles coming off lease especially for SUVs and trucks. Fitch's base case residual value loss expectation for these companies' auto lease ABS transactions has increased by 20-30% since the second half of 2007 as value declines accelerated. However, current data suggests that actual declines are exceeding this range in certain transactions with further deterioration expected. 'While ratings in the auto lease sector have traditionally been remarkably stable, the rapid rate of decline in vehicle values over the past six months is unprecedented and will put those ratings to the test,' said ABS Senior Director Ravi Gupta. Fitch's rating definitions and the terms of use Terms of Use are rules set up by the owner of an intellectual property or service to govern how they may be legally used. In many cases, terms of service are used as a contractual agreement between a company and users of a service they provide. of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures Policies and Procedures are a set of documents that describe an organization's policies for operation and the procedures necessary to fulfill the policies. They are often initiated because of some external requirement, such as environmental compliance or other governmental are also available from the 'Code of Conduct' section of this site. |
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