US subprime car loans return with a bang Sales of risky pools of securities backed by car loans are accelerating at the start of 2014 as investors snatch up the higher-yielding bonds that were popular in the build-up to the financial crisis. This week alone, about $2bn in deals that bundle car loans made to subprime borrowers have hit the US debt capital markets, following a 20 per cent jump last year to $21.5bn. Demand for the securities is forecast to increase further in 2014, helping push sales to the $25bn mark, according to Deutsche Bank estimates. The rise in deals backed by subprime auto loans comes as benchmark interest rates remain near historic lows. In addition, expectations for an increase in economic activity and higher consumer spending in the coming months has encouraged a growing number of investors to buy assets tied to lower credit loans. "Until recently, bond deals with the word "subprime" attached to them were seen as radioactive: Almost no one wanted to get near them," said Adrian Miller, director for fixed-income research at GMP Securities. But that has changed, particularly when it comes to subprime auto. Economic activity is accelerating and car sales are expected to remain solid. As a result, we are seeing more of these subprime deals coming through. Sales of the securities started to rebound late in 2012, but subprime auto sales increased rapidly last year. Offerings by the likes of Santander Drive Auto Receivables Trust and Hyundai Auto Receivables were largely oversubscribed, people familiar with the sales said. This week, American Credit Acceptance offered nearly $205m in subprime securities, while strong investor demand led Santander Consumer USA to increase an initial offering of $1bn in securities to $1.5bn, bankers said. Investor appetite has been reflected in increased financing options at dealerships across the US, which helped propel auto sales to 3.7m units in the fourth quarter of 2013, the best fourth-quarter result since 2007, according to Bloomberg data. Stable delinquency rates and stable used car values - which boost recovery rates on defaulted debt and ease losses for bondholders - have also helped lift subprime auto debt. Subprime auto sales accounted for 24 per cent of all auto ABS issuance last year, up from 20 per cent in 2012. Analysts said, however, that the popularity of these securities has yet to reach levels that point to the looser underwriting standards common in the build-up to the financial crisis, when subprime deals boomed. Net losses in the subprime auto deals peaked at 6.65 per cent in October, according to Standard & Poor's data. In the depths of the financial crisis in 2008, the net loss rate was 13 per cent. "While sales and trading of subprime auto securities have increased considerably, there's nothing yet that tells me that this market is particularly frothy," said Harris Trifon, head of ABS and commercial real estate research at Deutsche Bank. The fundamental outlook for the sector has been pretty strong.