S&P Global Ratings sees contract extensions continue to decline


S&P Global Ratings discovered contract extensions in both the prime and subprime credit segments are trending lower, according to its latest report released on Friday.

Analysts found that extensions in U.S. public auto loan asset-backed securities (ABS) declined for the fourth consecutive month in August. They made that assertion based on portfolio data filed with the Securities and Exchange Commission.

Across the 17 prime shelves tracked by S&P Global Ratings, extensions dropped 27% to 0.63% from 0.86% in July.

For the four public subprime shelves in their analysis, experts said extensions decreased 39% to 3.22% from 5.29% in August.

Also of note, S&P Global Ratings pointed out the outstanding balance of contracts remaining in extension status also decreased.

For prime paper, analysts spotted a 42% decline with the August reading coming in at 0.99%, after a reading of 1.71% in July. For subprime deals, the firm noticed a 34% drop with the August figure coming in at 7.88%, compared to 11.90% in July.

“This is an especially informative metric given that many of the prior months’ extensions were for multiple months — four months at a time in some cases,” S&P Global Ratings said.

Analysts mentioned a couple of other key observations, including:

• For public issuers, monthly extension rates declined for the fourth consecutive month in August due to the unemployment rate dropping to 8.4% from 10.2%. However, half of the subprime issuers reported an increase.

• The level of 60-day delinquencies for previously extended contracts whose deferral periods have ended increased to 1.58% from 1.29% in the prime segment and 4.27% from 3.46% in the subprime space as of the end of August.

“Despite mounting delinquencies on these loans, more are being repaid in full than are defaulting,” analysts said.

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