Markit, dealers mull new auto ABS derivatives index

By Nancy Leinfuss

NEW YORK (Reuters) - The creation of a new index allowing investors to hedge the risks of holding auto loan securities is in preliminary stages, according to Markit Group, the administrator of several key credit derivatives indexes.

"We are in very early conversations with members of the dealer community on an index that would be tied to auto loan securitizations, but there's no real shape around the product yet. It's in the early stages," said Ben Logan, Markit managing director, on Thursday.

Similar to the ABX and CMBX, synthetic indexes of home equity asset-backed securities and commercial mortgage-backed securities tied to credit default swaps, the new tool would allow investors to hedge against default risks on auto loan securities.

The index would feature pools of auto loans, from issuers like GMAC and Ford Motor Credit, which are packaged and sold as securities to investors in the U.S. asset-backed market.

Auto ABS issuance, shut down by subprime mortgage contagion fears late last year, reemerged in the new year, with issuers selling close to $8 billion of new supply. Investors have been willing to buy the deals at wider yield spreads.

A recent spate of warnings from credit rating agencies on rising U.S. auto loan delinquencies is fueling worries the consumer asset type may be facing the same problems as the market for mortgage securities backed by sub-prime loans.

Analysts expect some deterioration in pricing in the auto loan sector, and substantially more if the U.S. economy falls into a recession. They noted, however, that while delinquencies have crept higher, they are traveling up from the lows set in 2005 when bankruptcy reform went into effect, and are now sitting around the long-term average.

(Editing by James Dalgleish)