Hyundai Auto Receivables Trust has issued a nearly $1.36 billion auto loan asset-backed securitization that’s expected to receive a stable rating from Fitch Ratings.
The transaction, HART 2022-B, includes $286 million in Class A-1 with F1+sf rating maturing on July 17, 2023; $473.4 million in Class A-2A/B with AAAsf rating maturing on May 15, 2025; $429.1 million in Class A-3 notes maturing on November 16, 2026; and $103.7 million in Class A-4 AAAsf notes maturing on Aug. 15, 2028.
The collateral pool consists of new and used loans on cars manufactured by Hyundai Motor and Kia Corp. Hyundai Capital America, which is 80% owned by Hyundai Motor America and 20% by Kia America, is the loan originator and servicer.
Fitch last affirmed Hyundai’s Issuer Default Rating at ‘BBB+’ with a stable outlook in April.
The rating agency expects stable loan portfolio performance going forward. Portfolio delinquencies have trended downward since 2018, and securitization losses have stabilized since 2017, according to Jennifer LeMonds and Katrina Broski, the Fitch analysts who authored the report. A 1.6% base case cumulative net loss proxy for 2022 is derived from 2015 to 2018 securitization performance data. That’s lower than 1.7% for the 2022-A securitization.
HART 2022-B features credit enhancement at 7.8% for class A notes, 6% for B notes, and 3% for C notes.
Initial hard credit enhancement is sufficient to withstand “all classes of notes at each class’s respective loss coverage multiples,” the analysts wrote. That’s despite interest rate volatility and lower excess spread expectations, which for 2022-B are still slightly higher compared with 2022-A.
Collateral pool positives include a weighted average FICO score of 764. FICO scores above 750 represent 56.9% of the 2022-B pool. Loan seasoning at 11.4 months in this securitization is higher than 8.1 months for 2022-A. In addition, up to 95.1% of the vehicles in the pool are new and have strong model and segment diversification.
Fitch rated the effect of the USD Compounded Secured Overnight Financing Rate Index on the securitization as neutral, even though class A-2B notes will accrue interest at a floating rate based on SOFR, which the analysts noted were “not yet widely established in the market.” The upward interest rate stresses for the class A-2B notes, however, are “no different than those for Libor benchmarked notes," the analysts added.
Electric and hybrid vehicles account for 9% of the collateral pool, which did not impact Fitch's neutral score of three for environmental, social and governance relevance. That means ESG issues are credit neutral or have minimal credit impact on the transaction due to either their nature or type of management.
Among bond performance risk factors the report includes national or regional economic downturns, wholesale vehicle market weakness that leads to low vehicle recovery rates, bankruptcy and poor servicing.
