An Empirical Analysis On The Factors Impacting The Credit Spread Of Automotive Loan ABS

In recent years,with the booming Automotive Finance market,Automotive loan-backed ABS（hereinafter“Auto-ABS”）has also experienced rapid growth and becomes a critical underlying asset in the asset management industry.Meanwhile,default events have frequently occurred,involving not only bonds but also asset-backed securities,and have incurred considerable losses to the investors.Although no Auto-ABS hitherto has defaulted in China,the economic downturn,the car sales decline and the outbreak of COVID-19 Pandemic,which poses negative implications on borrowers’employment and income prospects,may lead to the deterioration of the credit-quality of automobile manufacturers and related businesses,hence increasing commingling risk of Auto-ABS.Therefore,this is a critical point to examine the credit spread of Auto-ABS and enrich our understanding of it.Drawing on a sample of Auto-ABS issued in China’s inter-bank market from 2012 to 2019,this research has provided empirical evidence to the factors that influence Auto-ABS credit spread.In particular,this research has employed a multi-regression model and examined a list of factors from the aspects of the basic asset pool,transaction structure,and original creditor.Based on the empirical framework and conclusion,this research conducted a case study on the specific Auto-ABS issued by the Great Wall Automotive Finance on October 16^th,2019.One of the major contributions of this research is that it has covered the crucial aspects of Auto-ABS.The findings of this research include,first,original creditor has the most significant effect on automotive loan ABS mainly because of the flaws in the bankruptcy-remote mechanism in China.Besides,the general practice in China allows original creditors to be loan service agencies,resulting in the commingling risk.Therefore,the credit quality of original creditors has a direct impact on the credit quality of the basic asset pool.Second,except for the default rate of the static sample pool,most underlying asset factors have non-significant effect on Auto-ABS credit spread.Finally,credit support index in transaction structure is significantly related to Auto-ABS credit spread.Based on the findings,this research proposes that we should further improve the bankruptcy isolation mechanism and strengthen the supervision of the original creditors serving as loan service institutions to reduce commingle risk.In addition,we should also strengthen the information disclosure of the original creditors.