Lehman Brothers has developed a new method to evaluate auto-loan backed bonds that it is calling the first of its kind. The model is innovative because it evaluates loan-level and deal-level information to see how the performance of auto deals vary over time as well as across different originators and credit profiles of the underlying borrowers. Prafulla Nabar, global head of quantitative research at Lehman in New York, said other auto models only look at prepayment and default rates and do not take into account all of the moving parts backing these deals.
Just over $74 billion in auto paper has been issued up to the end of November, compared to $80.6 billion for all of last year, according to data from Thomson Financial.
Nabar said the new model, which can be accessed and used through Lehman's Web portal and was created after requests from investors, will help buyers make better relative value decisions. Lehman has also recently started offering a model to evaluate sub-prime mortgage-backed deals. This takes into account factors including pool-level, borrower quality and vintage. Both models were introduced at Lehman's recent securitized products conference, held Dec. 10 in New York.