Given that the subprime auto ABS market has rebounded in the last three years, Wells Fargo believes that the new-issue volume in the sector “should easily” exceed last year’s $12.6 billion.
Issuance in subprime autos now stands at $10.6 billion year-to-date, increasing from $8.2 billion from the same time in 2011, Wells Fargo said.
“The fundamentals point to a normalizing market after several years of dislocation, and we currently see few signs of excesses in the subprime auto ABS sector,” the firm wrote in a July 30 report.
Similarly, Standard & Poor’s expects healthy growth in the subprime automotive space, citing strong auto sales and used-car prices and the entrance of several private-equity led new originators. The rating agency estimates total issuance in the sector to reach $15 billion this year.
Wells Fargo also highlighted that the two largest subprime auto ABS issuers, AmeriCredit Auto Receivables Trust and Santander Drive Auto Receivables Trust comprised 80% of the dollar volume of the total issuance in the last two years. However, they only accounted for 41% of the number of deals completed.
“The new look of the subprime auto ABS market has augmented investment opportunities, but it also means that investors may be tracking credit characteristics and relative value decisions across a wider set of issuers than in the past,” Wells Fargo wrote.
Meanwhile, S&P cited its recent report that said auto loan ABS net losses for both the prime and subprime sectors are near their lowest levels in the last six years.
On the prime side, Citigroup Global Markets looked at Toyota Motor Credit Corp.’s return as an ABS issuer.
In the last two years, the firm issued $8.3 billion of U.S. ABS market after being absent from the market for seven years, according to the Friday edition of Citi’s Consumer ABS Weekly. As of March 31, Toyota’s managed portfolio was $76.8 billion with $10.5 billion of those assets in ABS trusts.
Toyota has issued six auto loan securitizations totaling $8.3 billion from 2010–2012, becoming a major programmatic issuer.
Toyota sold 1.7 million automobiles and light-duty trucks in the fiscal 2012 in the U.S., which represents 13% of U.S. retail automobile and light-duty truck sales volume.
Citi analysts claimed that Toyota Auto Owner Trust (TAOT) is a low-loss issuer and provides decent value at the senior and subordinate level. This positive view is based on TAOT’s credit performance, sequential-pay deal structure, and its renewed visibility in the securitization market in the past two years.
Citi’s analysts also examined Toyota’s securitization program and gave an overview of its underwriting procedures in their report. They also described its performance, structure and collateral characteristics. Analysts noted seven key points including that TAOT’s credit performance tracks the best vintage.
They also mentioned that Toyota converted to sequential structure upon its return to the market from the concurrent-pay structure it had in the 2003 vintage pools, the most recent pre-crisis vintage.
The trust is also backed by high FICO score loans with an average of a 753 FICO in the past two years, which Citi said is comparable to other low-loss issuers like Nissan, Honda, and BMW.
Additionally, Citi analysts said that TAOT trusts’ proportion of used vehicles was stable from 2010 to 2012, averaging 23% and ranging from 20%–27%, which Citi views as a positive sign for investors.
Citi also cited Toyota’s long securitization history, despite its hiatus, having sponsored 20 auto loan securitizations trust since 1993.