Riskiest Subprime-Auto Bonds Reach Record Low Risk Premium

(Bloomberg) -- Risk doesn’t quite mean what it used to in this slice of the auto-bond market.

The junk-rated portion of subprime auto-loan asset-backed securities paid the smallest risk premium ever last week, according to JPMorgan Chase & Co.

Westlake Financial Services Inc.’s B-rated tranche came in with spread of 3.25 percentage points above the benchmark and a yield of 6.12 percent, which was 10 basis points tighter than what the company got on a similar sale in January.

Other subprime auto deals that sold this year with B-rated slices include First Investors’ sale last week at a yield of 7.27 percent and American Credit Acceptance at 6.65 percent on March 14.

“Strong demand in the primary market continues to support firm to tighter ABS spreads,” JPMorgan analyst Amy Sze wrote in a recent note. “Fundamentals in prime and nonprime auto loan ABS remain sound as evident in collateral, credit enhancement and performance trends on the newest vintage.”

--With assistance from Adam Tempkin

To contact the reporter on this story: Charles Williams in New York at cwilliams204@bloomberg.net.

To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Randall Jensen, Andrew Dunn

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