Moody’s outlook stable for Canadian ABS
The outlook remains stable for the Canadian auto and credit card asset-backed securities (ABS) and for Canada’s seven covered bond programs, says Moody’s Investors Service in its annual outlook report for the sectors. The stable outlook reflects very strong collateral attributes in both credit card and auto ABS in Canada.
Neither sector will likely be able to match their strong 2012 levels of issuance. Auto ABS issuance is expected to be lower in 2013 than it was in 2012 while credit card issuance will not reach the historical high that was set in 2012, according to Moody’s.
“Although originators of auto loans continue to increase the concentration of loans with extended terms in new transactions of up to 84 months, borrower quality as measured by credit scores remains consistent for both older and more recent vintages,” said Moody’s VP — Senior Credit Officer Michael Buzanis, author of the report, “Canadian ABS and Covered Bond: 2013 Outlook.”
“While we expect stable and strong auto ABS performance, a period of economic weakness or consumer credit stress would result in higher default and loss levels on loans that have extended terms,” said Buzanis. “Weak-but-positive growth in the Canadian economy and stable unemployment rates will keep auto loan defaults at current low levels through this year.”
The long-term ratings of bank sponsors of credit card ABS remain high, which supports a stable outlook for their related credit card-backed ABS. Card collateral comprises highly seasoned accounts from prime quality obligors, which points to continued strong performance. However, the sector will face a stable-but-weak economic outlook and a Canadian unemployment rate that is not likely to decline so performance will not improve much further.
The credit quality of
seven Canadian covered bond programs is stable based on the strong financial standing of the sponsors and the high quality of the residential mortgage collateral, says the Moody’s report. Canadian covered bond issuers’ ratings were downgraded by the rating agency in 2012 but are stable at Aa3 or better levels and so the credit quality of their covered bonds will remain stable. Attractive alternative funding options and the purchase by Royal Bank of Canada of auto ABS sponsor Ally Credit Canada will dampen auto ABS issuance in 2013, which, at about CAD1.5 billion, will be lower than the 2012 level, says Moody’s.