According to a new report, DBRS Morningstar has a stable credit rating outlook across U.S. asset-backed securities (ABS) for 2023.
DBRS Morningstar expects some deterioration in underlying consumer ABS collateral performance amid an inflationary environment with rising costs of goods, particularly across subprime auto and consumer loans, but believes structural mechanisms, such as deleveraging and credit enhancement, will help mitigate this expected decline in collateral performance.
Across consumer ABS, DBRS Morningstar reported stable rating outlooks for the auto loan, credit card receivable, consumer loan, residential property assessed clean energy (R-PACE), Federal Family Education Loan Program (FFELP) student loan, private student loan, refinanced (Refi) student loan and timeshare sectors.
On the commercial side of things, potential ongoing supply chain issues and inflationary pressures are among the chief concerns, with certain sectors likely to be more vulnerable to a recessionary environment, including transportation, housing and retail-oriented industries. Meanwhile, other sectors, such as agricultural finance, litigation finance, structured settlement and venture debt, are either more countercyclical or are less affected by broader macroeconomic conditions, according to DBRS Morningstar.
Across commercial ABS, DBRS Morningstar reported stable rating outlooks for the agricultural finance, auto fleet lease, aviation, cell tower, equipment lease, film/broadcasting royalty, litigation finance, marine container, commercial PACE (C-PACE), rental car, small business, structured settlement, venture debt and whole business sectors.
“While consumers have displayed remarkable resiliency throughout the pandemic, much of that strength has been heavily supported by federal stimulus measures, which have since expired,” Stephanie Mah, senior vice president of structured finance research at DBRS Morningstar, said. “The current labor market remains strong, with subdued unemployment levels and rising wages. However, job growth prospects are expected to deteriorate, albeit with a lag, in response to rising interest rates, and wages will be further pressured by inflation.”
