Fitch captive finance units growth, asset quality to moderate

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(The following statement was released by the rating agency) CHICAGO, May 20 (Fitch) Captive finance subsidiaries of major global manufacturers (captives) have continued to report very strong profit margins, driven by outstanding credit-loss performance and improved demand for their parents' products. Portfolio growth and credit quality gains are likely to moderate, however, as competition with banks heats up, says Fitch. Most captives reported robust origination trends in 2012 and 1Q13 as access to low-cost funding remained good and demand for parent products picked up. Auto captives, including Ford Credit and General Motors Financial (GMF), have benefited from improving demand for new vehicles and stronger auto ABS volumes. Major equipment captives such as Caterpillar Financial Services and John Deere Capital have seen strong portfolio growth as better demand trends in the U.S. and Asia have offset continuing softness in Europe. Growth rates will likely slow somewhat, as banks take advantage of abundant low-cost deposits and expand their exposure to capital-efficient consumer and commercial lending Most major captives ended 2012 with credit-loss metrics at historic lows. This reflected the impact of a broad-based tightening of underwriting standards, as well as ongoing improvements in the U.S. labor market and rising demand for used vehicles and equipment. We expect credit quality trends to normalize over the remainder of 2013 as underwriting terms begin to loosen in the face of heightened competition. In addition, used vehicle and equipment prices are likely to come under greater pressure moving into next year. Captives and their parents have benefited from excellent access to wholesale capital markets to diversify and strengthen their funding profiles. New sources of funding have allowed companies to term out debt maturities, while increasing liquidity buffers, in order to reduce refinancing risk and support additional portfolio growth. Balance sheet leverage at captives remains below their five-year averages, which, given record low credit losses and expected moderation in portfolio growth, could result in increased dividends to parents. GE Capital Corp.'s (GECC) announcement today that it plans to return $6.5 billion in dividends to its parent, General Electric Corp. in 2013, reflects this view. Ratings for captives are equalized with those of their corporate parents if Fitch considers them to be core subsidiaries. Currently, all Fitch-rated captives with the exception of GMF are considered core to their parent as a result of strong integration and the critical importance of finance subsidiary activities to the parent's overall business. GMF is currently on Rating Watch Positive, reflecting our view that it will become core to GM as it acquires international operations in the near term. For a detailed review of the financial performance and credit profiles of major captive finance companies, see "Captive Finance Companies: 2012 Comparative Analysis," dated May 20, 2013, at this site Contact: Mohak Rao, CFA Director Financial Institutions +1 212 908-0559 Bill Warlick Senior Director Fitch Wire +1 312 368-3141 Fitch, Inc. 70 W. Madison Chicago, IL 60602 Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: brian.this site The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at this site All opinions expressed are those of Fitch Ratings. Applicable Criteria and Related Research: Captive Finance Companies here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW. FITCHRATINGS. COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.