NEW YORK –
Even though the coronavirus pandemic appears to pack an economic wallop, new research is showing that the subprime auto-finance market can absorb a punch or two.
According to the second annual market study released today by Davis & Gilbert’s Credit Chronometer, market participants are expecting subprime auto financing performance to deteriorate, and many predict COVID-19 will have a long-term impact on the sector. However, the study indicated participants also show signs of resiliency.
Authored by Davis & Gilbert partner Joseph Cioffi, the Credit Chronometer report titled, “Participants’ Expectations in a Time of Crisis,” summarized the results of an anonymous study of more than 100 originators, investors, servicers, trustees and other securitization market participants on topics such as credit quality, the sufficiency of credit enhancement protections and the ability to obtain and maintain desired credit ratings.
Cioffi pointed out the COVID-19 pandemic has driven up unemployment numbers to historic levels and led to widespread forbearances, yet survey participants still expect deal structures to hold and surprisingly reacted with moderation to this tumultuous market moment.
“Moderation and even optimism in this potentially sustained period of disruption are some of the surprising reactions we’ve seen in these survey results,” said Cioffi, chair of Davis & Gilbert’s insolvency, creditors’ rights & financial products practice group.
The comprehensive report compares the 2019 survey results to 2020 attitudes both before the onset of the coronavirus pandemic and again afterward, giving an evolving, progressive perspective on market opinions towards credit enhancement, credit quality and deal performance.
While expectations of downgrades due to unemployment and fears around borrowers’ economic vulnerability were predictable, Cioffi noted in a news release that the results were not all pessimistic.
Key findings of the study include:
— Negative sentiment is more tempered than one might expect given the economic uncertainty and unemployment rate.
— Servicers are the most positive group, perhaps due to their advantageous position to receive performance information early and react and respond to borrowers.
— Layered risk is less of a concern than its coverage in the press suggests.
The full findings can be downloaded here.