TEXT-S&P release on U.S. Auto ABS

(The following statement was released by the rating agency)

May 8 - In today's credit market, when consumer delinquencies and losses are rising and most economists are predicting a recession, it is reasonable to wonder how far losses would have to rise for 'AAA' rated tranches or 'BBB' rated securities to be downgraded.

To answer this question, Standard & Poor's Ratings Services has published an article on RatingsDirect, titled, "Scenario Analysis: What Would It Take To Cause Downgrades On U.S. Auto Loan ABS?" describing a sensitivity analysis on a sample of auto loan asset-backed securities (ABS).

The primary focus of the analysis was to test the effect of various levels of losses while holding the other variables, such as prepayments, loss timing, and recoveries, constant. The article also describes other stress tests that were run to determine the potential rating effect of changes in loss timing and prepayments.

The study was conducted on the captive/semicaptive auto finance companies of the Big Three Detroit automakers (GMAC LLC, Ford Motor Credit Co., and DaimlerChrysler Financial Services Americas LLC), using a 2007 transaction from each.

"We selected the domestic captives because they are the largest segment of the auto loan ABS market, and we chose the 2007 vintage because its losses and delinquencies are exceeding the recessionary high levels from 2000 and 2001," said Standard & Poor's credit analyst Amy Martin.

"The structures of many transactions provide intrinsic protection against rating volatility if net losses increase above our initial expectations," said Standard & Poor's credit analyst We Chen Foo. As a result, we have downgraded auto loan ABS infrequently--only 22 downgrades from 2002 to 2007 compared to 405 upgrades during the same period.

This article, part of a series produced by Standard & Poor's Structured Finance Surveillance Group, provides insight into circumstances under which ratings may change or notes may default in an asset class, given a particular set of macroeconomic circumstances.

These articles are being produced as a result of Standard & Poor's "New Actions" initiative announced recently (see the article titled, "Detailed Descriptions Of S&P's New Actions Aimed At Strengthening The Ratings Process," published Feb. 7, 2008, on RatingsDirect).