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 NEW YORK, Aug. 2 /PRNewswire/ -- Fitch has developed cash flow stress scenarios to test timeliness of payment and excess cash adequacy on multiclass securities backed by auto loans. The scenarios and other rating guidelines are explained in a new Fitch report, "Multiclass Asset-Backed Securities," published today.
 The maturing asset-backed market, together with investors' search for specific maturities and higher yields, has created an appetite for increasingly complex derivative securities. The multiclass structure, common in mortgage, home equity, and mobile home loan issuance, was used for auto loans in 1986 but put aside until John Deere's farm equipment- backed transaction in late 1992, which was rated by Fitch.
 These structures are likely to proliferate as investment objectives are matched by more tailored cash flows and issuers benefit from the potentially broader investor base and, depending on interest rate conditions, an even cheaper cost of funds. While these structures have obvious advantages, certain classes could be more vulnerable than others to changes in repayment rates on the underlying asset.
 In conjunction with the multiclass structure, the use of excess cash has emerged as a significant part of credit enhancement, especially in auto loan deals. In a declining interest rate environment, market rates decrease faster than consumer loan rates. The recent declines in interest rates created substantial excess cash from interest, especially in auto deals. This excess, ranging from 2.50 percent - 6.00 percent, can be retained in a reserve account to cover losses instead of being released to the issuer. This provides issuers with more flexibility to meet the same credit enhancement requirements efficiently.
 One reason that auto loan investors have welcomed the multiclass structures and use of excess cash is the asset's strong track record. Longstanding performance statistics, such as those of General Motors Acceptance Corp. (GMAC) and Chrysler Financial Corp., provide a level of predictability that buyers of derivatives need due to the impact prepayments may have on yield. Furthermore, solid historical loss and delinquency experience increases confidence in asset performance, boosting investor acceptance of excess cash as credit enhancement.
 While a strong track record is important in evaluating repayment and loss expectations, a variety of stress scenarios rounds out the picture of potential performance. Multiclass structures involve complex payment priorities and contain classes having either short-term ratings or maturity dates prior to the receivables' scheduled final payment date. Since ratings of 'F-1+' (for securities maturing in approximately one year or less) and 'AAA' (generally more than one year) address timeliness of payment as well as full repayment of principal and interest, the final maturity dates must be met for all classes. When assigning a rating, Fitch requires that, even under the most stressful environment applicable to each individual structure, each class still would be paid in accordance with its terms.
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 /CONTACT: Suzanne Mistretta, 212-908-0637, or Henry W. Wilson, 212-908-0617, both of Fitch/ CO: ST: IN: AUT SU:

SH -- NY053 -- 8317 08/02/93 11:20 EDT
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Publication:PR Newswire
Date:Aug 2, 1993

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