The frequency of US asset-backed security (ABS) downgrades fell to 7.8% in 2004 from 10.2% in 2003, but remained higher than the 5.4% historical average. The upgrade rate improved slightly to 2.1% in 2004 from 1.3% in 2003.
ABS securities backed by manufactured housing loans continued to experience a large number of downgrades, accounting for roughly 50% of all US ABS downgrades, and 27% of all structured finance downgrades worldwide in 2004. ABS securities backed by franchise loans, small business loans, aircraft and equipment leases, and tobacco settlements contributed roughly 40% of the US ABS downgrades.
ABS securities backed by autos, credit cards, and student loans continued to exhibit strong performance in 2004. No downgrades were observed for credit-card ABS securities in 2004, and 10 securities were upgraded. Auto-ABS saw 70 ratings upgraded in 2004, resulting in a 14% upgrade rate, whereas only six auto-ABSwere downgraded in 2004, making for a 1.2% downgrade rate.
By region, the US structured finance downgrade rate fell to 4.9% from 7% in 2003, while the upgrade rate rose to 4.6% from 3.1%. In Europe, the downgrade rate dropped sharply, to 3.9% from 10%, thanks to a marked improvement in European CDO deals.