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Subprime Auto ABS Thriving, But Regulatory Uncertainty Looms

NEW YORK, June 17, 2021 – Subprime auto market participants are expecting some deterioration in 2021 as concerns shift from the economic uncertainty brought about by the pandemic, to regulatory uncertainty ushered in with the new presidential administration. The potential for heightened regulatory scrutiny is weighing on market players, according to the third annual market study released today by Davis+Gilbert LLP’s Credit Chronometer.

Authored by Davis+Gilbert partner Joseph Cioffi, the Credit Chronometer report, Moving On from 2020, a 360o Market Study of Subprime Auto Participants, 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.

With a new administration has come a new concern. Participants see potential regulatory enforcement or new regulations as potentially dampening enthusiasm for new originations and ABS issuances. The full findings can be downloaded here.

“Throughout the pandemic, participants have remained cautiously optimistic and their confidence in deal structures and credit extensions remains relatively strong, but the potential for new regulation is putting a chill on the sector,” said Cioffi, chair of Davis+Gilbert’s Insolvency, Creditors’ Rights + Financial Products Practice Group.

The comprehensive report compares 2021 survey results to 2020 responses, tracking evolving opinions towards credit enhancement, credit quality and deal performance. While expectations of downgrades due to delinquencies and fears around unemployment and borrowers’ economic vulnerability were predictable, the results show both optimism and a concern for the regulatory cloud looming overhead.

Key findings of the study include:

• Fewer participants expect downgrades.
• Anticipation remains high for the same level or more credit extensions going forward.
• Rate caps, debt collection limitations, and the CFPB “changing the rules of the game” are market risks weighing on participants.
• Subprime lenders becoming subject to an “ability to pay” law is a major concern.
• A majority of investors expect the pandemic to have a lasting negative effect on their participation in subprime auto securitizations.

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 Risk Chronometer, which closely tracks market risks, is a key feature of the site.

About Davis+Gilbert’s Insolvency, Creditors’ Rights + Financial Products Practice Group
Davis+Gilbert’s Insolvency, Creditors’ Rights + Financial Products 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.


For more information, please contact:
Dawn Longfield
Davis+Gilbert LLP
212 468 4981
dlongfield@dglaw.com