Fitch Ratings is maintaining its negative rating outlook on U.S. consumer finance companies in 2003, although the pace of negative rating actions is expected to slow, as rating outlooks are becoming more stable, according to a new report published this week by the rating agency titled ‘U.S. Consumer Finance: A Light at the End of the Rating Tunnel in 2003’. Consumer lenders have adapted to the weaker economy in a number of ways, but, even with these added measures, Fitch expects consumer lenders to remain challenged in 2003.
‘Fitch’s rating outlook for the consumer finance sector remains negative, reflecting economic uncertainties and challenging capital markets,’ said Christopher Wolfe, director, Fitch Ratings. ‘During 2003, Fitch will continue to focus on a lenders’ abilities to adapt to changing economic and funding environments, with a focus on managing liquidity, credit quality and capital.’
An important issue confronting consumer lenders is striking an appropriate balance in the capital structure between unsecured debt and debt secured through asset-backed securitizations (ABS). In Fitch’s view, some companies have become too reliant on securitization, while others have yet to access the market. The new report examines alternative financial management options, including whole loans and retail note programs.
In addition to an examination of consumer macroeconomic trends and a detail of key credit rating issues for consumer lenders, the new report offers analysis on the separate sectors that these companies represent, including residential mortgage, auto finance and leasing and credit cards.
‘The consumer finance universe includes a diverse set of companies, and individual company outlooks should be predictive of future rating actions,’ said Wolfe. ‘Consumer lenders with strong balance sheets and solid sources of liquidity are well-positioned to maintain current ratings, while thinly capitalized companies with modest access to liquidity will struggle during 2003.’
The new report is available on Fitch’s website at [www.fitchratings.com]. The report can be found by linking to the ‘Finance & Leasing Companies’ sector and then clicking on ‘Special Reports’.