Credit Card and Auto Loan Collateral Lead ABS Market in 2000

2001/01/08

NEW YORK (Standard & Poor's CreditWire)--ABS experienced a strong year in 2000, with the dollar volume of deals up about 20% over 1999, and with the number of issues running at about the three-year average. The activity was led by credit card and auto loan collateral, followed by a solid showing for equipment leases and student loans. The fastest growing category of all, however, was CBO/CLOs, which accounted for 8% of all the new ratings in 2000.

In 2001, the ABS market will have to contend with a slowing economy and perhaps even a recession. Interest rates have already come down, but only as a reaction to weaker retail sales and activity. Corporate debt remains high and burdensome, particularly as revenue and profit growth are slowing. Auto companies will have to contend with slowing sales, high inventories, and residual losses, while credit card ABS may see a rise in delinquencies and charge-offs as unemployment rises.

Issuance is likely to stay strong as companies continue to move to
securitize and monetize assets. The big question, however, will be the
capability of the investor to absorb what is likely to be a rising tide of
supply in a less friendly environment.

A comparison of year-to-date Nov. 30 public market volume relative to the same period in 1999 shows significant growth in autos, credit cards, and student loans. Auto issuance rose from about $43 billion to just over $61 billion, credit card issuance climbed from $38 billion to $48 billion, and student loan issuance jumped from $5.7 billion to $12.4 billion. Together, the three sectors of the market grew by 39%.

In the last year, ratings were most affected by corporate credit quality last year, a result of rising corporate debt and falling equity markets. Deteriorating credit quality was the underlying reason for the vast
majority of Standard & Poor's downgrades through all of 2000. In
contrast, improving collateral performance was behind nearly all of the
upgrades.

The auto ABS sector had a strong year but it was not without turbulence. Problems with residual losses cast a shadow over the auto lease sector and public ABS new issue volume dropped $4.2 billion in the first 11 months of 1999 to about $2.5 billion for the same period in 2000. Bridgestone/Firestone Inc.'s tire problems made securitization a more attractive funding solution for Ford Motor Co. Repeating its performance of 1999, Ford Motor Credit Co. was again the largest issuer in 2000. Chrysler Financial Co. L.L.C. executed its first transactions under the DaimlerChrysler name, reflecting the 1998 merger of Daimler Benz AG and Chrysler Corp. Surprising growth also came from the private sector with Ford Motor Credit Co. and General Motors Acceptance Corp. selling LIBOR-based variable pay term notes (VPTNs) directly to their respective commercial paper conduits.

A strong job market and low unemployment bolstered an already solid
consumer and kept bank credit card charge-off rates from barely moving in 2000, according to Standard & Poor's Credit Card Quality Indexes. The credit card ABS markets also witnessed the return of Citibank N.A. after a 10-month absence. Citibank's re-entrance with its much anticipated and innovative note issuance program raised expectations for a deeper, more liquid credit card ABS market going forward. The new program allows Citibank to issue subordinate notes without having to issue senior notes at the same time. It is believed that the note issuance and expansion of the investor base will attract non traditional credit card ABS investors due to the attractiveness of the yields on the subordinated notes.

Manufactured housing hit some rough spots in 2000 and was a source of 90 downgrades over the course of the year. Deteriorating credit quality was the reason given by Standard & Poor's for most of these ratings actions. Ironically, another factor might have been a strong consumer, who opted for more expensive traditional housing, leaving the typically lower cost, manufactured home industry hurting from a decline in business and revenues, Standard & Poor's said.