The record number of Americans falling behind on car payments is stoking concerns that more pain is in store for subprime auto lenders, following the recent high-profile collapses of Tricolor Holdings and PrimaLend Capital Partners.
The worries are showing up most clearly in the market for bonds backed by car loans, a key source of funding for lenders to higher-risk borrowers. Investors now want roughly 50 basis points of extra yield to own the lowest-rated slices of subprime auto ABS compared with two months ago, lifting average risk premiums to about 170 basis points, according to Wells Fargo & Co. data, the highest since May.