Subprime Auto Bondholders Face Possible First Hit in Decades
- Holders of riskiest parts of three ABS deals may see losses
- Consumers are not repaying their debt after lenders shut doors
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The collapse of two US auto dealers and a growing pile of delinquent car loans are threatening to deliver losses in a corner of Wall Street that, until now, has been a sea of calm: the asset-backed securities market.
Bonds backed by car loans made by U.S. Auto Sales and American Car Center, two used-car dealers that shut their doors earlier this year, have been veering into distress in recent weeks. Borrowers have been falling behind on payments, and Citigroup believes that some of the riskiest parts of three different asset-backed deals could fail to return principal to investors.