Auto market participants are expecting subprime auto loan performance to deteriorate, and many predict COVID-19 will have a long-term impact on the sector. However, participants also show signs of resiliency, according to the second annual market study released today by Davis+Gilbert’s Credit Chronometer.
Authored by Davis+Gilbert partner Joseph Cioffi, the Credit Chronometer report, Participants’ Expectations in a Time of Crisis, summarizes the results of an anonymous study of over 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.
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. The full findings can be downloaded here.
“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 + Finance 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, 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.
About Credit Chronometer™
Credit Chronometer™ is dedicated to analyzing economic, market and political events that shape the legal landscape and impact credit markets, including those related to auto, student and mortgage loans. The Subprime Auto Loan Crisis Chronometer, which closely tracks market risks, is a key feature of the site.
About Davis+Gilbert’s Insolvency + Finance Practice Group
Davis+Gilbert’s Insolvency + Finance Practice Group is a multi-disciplined practice engaged in a broad range of corporate finance, insolvency and litigation matters, involving sophisticated financing products. The group regularly prosecutes and defends litigation involving financial instruments, guides clients through financially distressed situations and formulates and executes creditor enforcement strategies. The extensive and diverse experience of the interdisciplinary group makes it particularly well-equipped to advise clients in rapidly evolving and dynamic industries.
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