Santander Consumer USA Holding’s second subprime auto loan securitization of 2016, launched this week, provides a few clues as to why the company announced Wednesday it would be pulling back its originations in the problem-credit space.

The credit quality of the $1.21 billion Santander Drive Auto Receivables Trust (SDART) 2016-2 is similar to that of the sponsor's deals of the previous few year, with a weighted average FICO score of 600, although Fitch notes that the concentration of scores greater than 600 is 40.5% -- “toward the higher end” of the 31.1%-45.9% range seen in deals since 2012. “The concentration of unknown FICO scores (15%) remains at the platform’s highest recorded levels over the past three years,” the presale states.

These are not Santander's riskiest loans; it securitizes its deep subprime loans via separate platform, dubbed DRIVE. Nevertheless, one of the primary rating concerns cited by Fitch in the report on SDART 2016-2 is the fact that losses on deals Santander completed in 2013-2015 have been tracking higher. 

The latest deal does feature significantly fewer loans with terms of six years or longer; these account for just 4.57% of the 73,320 loans, down from 15.19% in February’s inaugural 2016 SDART securitization. In each of the three prior SDART deals in 2015, the 73+-month figure topped 16%.

At the lowest level of the last 12 SDART deals in that time span is the average loan-to-value ratio of the loans. At 107.33%, the weighted LTV has steadily declined from 114.1% since 2014. Cars sold with extremely high LTVs of 140% or more have all but vanished in this pool (0.94% of the collateral) compared to two years ago when Santander was securitizing as much as 5.3% (2014-4) of the collateral with loans that exceeded car or truck values by 40%.

The composition of new cars has increased slightly, but Fitch attributes that to the continued rise in Chrysler Capital originations since 2013. All of the 73+-month loans in the pool derived from the new-car Chrysler Capital originations channel.

The loans in the pool have a weighted APR of 15.99%, consistent with the previous deal, but down from 16.3% in two prior 2015 deals. “Lower APRs are traditionally indicative of stronger credits. However, the 2016-2 pool’s lower WA APR is likely due to increasing subvention levels on the CC collateral and heightened competition within the subprime auto lending market,” the presale report notes.

SDART 2016-2, through lead underwriter JPMorgan, will issue seven classes of notes a $191.2 million A-1 class money market tranche; and two tranches with preliminary ‘AAA’ ratings from Fitch: $350 million of Class A-2 notes with a legal final maturity of July 2018 are split into floating- and fixed-rate tranche; and $161.9 million of class A-3 notes maturing in May 2020. All benefit from 49.85% credit enhancement.

That level of enhancement is in line with Santader's previous deal.

Rising competition was considered the prime factor in the Dallas-based company’s report of its first decline in originations in two years, as new loans shrunk 6% to $6.8 billion from the first quarter of 2015.Delinquencies and repossessions are also mounting. The 31-60 day delinquency levels have gone up slightly to 7.58% in the first quarter of 2016, compared to 7.3% in first-quarter 2015. For loans 61-90 days late, the rise was from 2.49% last year in March to 2.72% through the first three months of this year.  Repossessions at the end of 2015 account for 13% of the outstanding contracts in Santander Consumer’s $26.5 billion portfolio. Repossessions are occurring at a clip in 2016 that an annualized basis would increase repos to 16.35%.

The aggregate balance of the loans in the pool is $1.35 billion. Santander’s total portfolio of new- and used-car loans totaled approximately $26.5 billion at year’s end 2015, an increase of 15.9% from 2014 due to higher auto sales and origination growth. But Fitch states it the growth figure is a “significant

decrease” from Santander Consumer’s 30.4% growth from 2012 to 2013.

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