Credit metrics for subprime auto loans are getting worse, but the ABS market is stable, says S&P.

There are a lot of reasons to worry about securities backed by sub-prime auto loans. Delinquency rates are rising and the recovery values are worse as used car prices stumble. Asset-backed security loss rates are rising.

Yet S&P Global Ratings hasn’t downgraded any of the ABS it covers and has a “stable” outlook for the sector.

Analysts explain why in a new report Monday. There are many technical reasons why they believe the structure of the subprime auto ABS market — and especially the securities they rate — are better positioned than during the financial crisis.

Below are two paragraphs that cover many of the reasons:

A lot has changed… New subprime auto originators are mostly privately owned and are therefore under less pressure to meet quarterly earnings targets than public companies. While some of the equity partners, in our view, had aggressive growth goals, a few have since tempered these goals in light of thinning profit margins and are now focused on improving operating efficiencies. In addition, auto finance companies no longer use gain-on-sale accounting (unless they sell their residuals). Inadequate provisioning for loan losses, though, can still occur. The Financial Accounting Standards Board’s new guidance for estimating allowances for credit losses (current expected credit losses methodology [CECL]), which will be implemented for fiscal years beginning after Dec. 15, 2019, aims to address this.

Furthermore, due to better technology most subprime companies now service and collect payments centrally, which allows for more control over collection efforts and smoother servicing transfers if and when they become necessary. Also, bond insurance is no longer used in this market given the absence of ‘AAA’ rated providers. As a result, issuers that obtain ‘AAA’ ratings today on their ABS issuances generally have longer operating histories, more experienced management teams, and better capital and liquidity positions. We cap our ratings below ‘AAA’ or choose not to rate transactions from issuers with short operating histories or for which we have other operational concerns. Also, in our view, subprime auto loan securitizers are more focused on regulatory risks than issuers were in previous growth periods.