U.S. ABS 2024 Outlook

Morningstar DBRS published its U.S. ABS 2024 Outlook. Highlights include the following:

-- We expect to see some deterioration in underlying consumer asset-backed securities (ABS) collateral performance amid the backdrop of inflationary pressures and higher interest rates, particularly across subprime auto loans/leases and consumer loans. We have negative credit rating outlooks for ratings on subordinated bonds for both the auto loan/lease and consumer loan sectors in 2024.

-- We have stable credit rating outlooks for the credit card receivable, residential property assessed clean energy (R-PACE), Federal Family Education Loan Program student loan, private student loan, refinanced student loan, and timeshare sectors.

-- On the commercial side, we have negative collateral performance outlooks on the equipment lease (primarily small ticket and transportation-backed transactions) and small business loan sectors, as we expect higher delinquencies and defaults coincided with lower recovery rates. However, we have stable credit rating outlooks on both sectors because of the relatively short term of collateral assets and deleveraging transaction structures.

-- We have a positive outlook for film/television (TV) royalty-backed ABS in 2024. TV programming royalties encompasses a variety of asset types including sporting events and reality TV shows, among others.

-- We have stable outlooks on the remaining commercial ABS sectors, including agricultural production loan, auto fleet lease, aviation, cell tower, litigation finance, marine container, commercial PACE (C-PACE), rental car, structured settlements, venture debt, and whole business.

“While monetary policy tightening is likely over, consumers and businesses alike will continue to face inflationary pressures and high interest rates in 2024,” said Stephanie Mah, Senior Vice President, Structured Finance Research. “The U.S. consumer will likely continue to be hampered by higher debt servicing costs, thereby moderating spending. Indeed, student loan payments started resuming in October 2023, while personal saving levels are running considerably lower,” added Mah.