Stellantis Financial Services is preparing to sponsor a $311 million asset-backed securities (ABS) deal secured by subprime auto loans, and will issue the notes through the First Investors Auto Owner Trust, 2022-1.
A frequent issuer, Stellantis has come to the securitization market about 29 other times since 2002, but this deal appears to be the first since the Netherlands-headquartered multinational acquired First Investors in an all-cash transaction finalized last November, according to a pre-sale report from Kroll Bond Rating Agency. Before the acquisition, Stellantis was the only major company operating on U.S. soil to do so without a captive finance arm.
As for the five classes of notes totaling $311.6 million, the notes will be issued from a collateral pool of fixed-rate retail automobile contracts made to subprime obligors. The borrowers generally have a credit bureau score ranging from 500 to 650, as they purchased new and used autos.
The transaction uses a sequential pay structure, wherein the $230 million, class A notes will receive principal payments prior to all subordinate notes, and then the same prioritization structure will continue for classes B, C, D and E, KBRA said.
In terms of credit enhancement, the notes benefit from overcollateralization (O/C) that starts at 0.0% and will increase to 5.7% of the current pool balance. The O/C is subject to a floor equal to 0.50% of the initial pool balance and the expected pre-funding amount.
FIAOT 2022-1, also has a cash reserve account, funded at closing, that is equal to approximately 1.5% of the initial pool balance and expected pre-funding amount. The trust also benefits from excess spread of about 7.7%.
Due to high demand and limited supply of automobiles, due to COVID-19 related production delays, KBRA noted that used cars have seen significant inflation in recent months. If used car pricing returns to historic levels (especially before the notes reach maturity) then the defaulted collateral could result in a shortfall of recovery rates on the bonds.
In another potential credit negative, FIAOT 2022-1, has no backup servicer. First Investors Servicing Corporation will service the notes. It is now backed by a strong corporate parent, however, which mitigated some of KBRA’s apprehension. Still, the lack of a backup servicer remained a concern.
