S&P Global Ratings spots continued decline in extensions, return of contract payments


S&P Global Ratings reported on Tuesday that contract extensions connected with public auto loan asset-backed securities (ABS) improved at an accelerated rate in July relative to June, representing the third consecutive month of declines.

The firm also noted the rates at which contract holders made a full payment after their extension expired.

Analysts discovered these trends based on loan-level data filed with the Securities and Exchange Commission.

Across the 17 prime shelves tracked by S&P Global Ratings, analysts indicated that extensions dropped 38% to 0.86% from 1.39% in June.

For the four subprime shelves in its analysis, the firm determined extensions decreased 31% to 5.29% from 7.66% in June.

Nonetheless, S&P Global Ratings said that extensions remained above pre-COVID-19 levels, at about 2.2 times January’s prime level and 2.6 times January’s subprime levels.

“These abnormally high deferrals are distorting traditional performance metrics, causing losses and delinquencies to be lower than otherwise,” analysts said in a news release, “and some securitizers think performance will not normalize until the fourth quarter of this year or first quarter of next year.”

S&P Global Ratings touched on what it believes to be three other key observations from the latest data, including:

• Of the extended loans from March to July, 82% and 64% in the prime and subprime sectors, respectively, have come out of extension status and remain outstanding.

• The vast majority of these loans continue to perform and remain current. However, analysts observed an uptick in 60-day delinquencies in July relative to June for these previously extended contracts.

• Of those prime and subprime contracts that have come out of extension status, 68% of the prime loans and 60% of the subprime contracts made a full payment in July.

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