Agencies project higher losses in $800M GMF prime-auto deal due to COVID-19
Ratings agencies are projecting slightly elevated losses – and more of them front-loaded – for the next prime-auto-loan securitization GM Financial is attempting to market amid the ongoing coronavirus pandemic.
According to presale reports, the captive finance arm of General Motors is planning an $800 million bond sale backed by $841.4 million in receivables of loans from the company’s $36.8 billion managed portfolio.
Other than a slight rise in used-car collateral and a small decline in long-term contracts over 61 months, much of the pool’s characteristics are similar to GM Financial’s previous $1.25 billion offering in January. Over 94% of the capital stack in GM Financial Consumer Automobile Receivables Trust 2020-2 will be represented by senior note tranches with preliminary AAA ratings from both Fitch Ratings and S&P Global Ratings. (A one-year money-market tranche carries each agency’s top short-term rating of A-1+ and F1+ for S&P and Fitch, respectively).
But with much of the country’s economic activity shuttered by nationwide shelter-in-place policies, more losses are expected to come from delinquent and defaulted accounts from the pool’s prime customer borrower base. S&P estimates losses of 1.3-1.5%, compared to 1%-1.2% for the similarly structured GMCAR 2020-1 transaction.
The highest cumulative net loss for any of GM’s existing ABS deals seasoned over five months is 0.74%, according to Fitch.
Fitch, which did not rate January’s deal, set a base-case CNL proxy of 2.33% to measure potential ratings impact going forward. But Fitch’s base-case four-year base timing scenario, however, showed the losses heavily skewed to year one and two on the deal – showing 80% of expected losses occurring in 2020 and 2021 due to the ”current stressed economic environment.” (The historical default base timing scenarios are 35%/40% in the first two years, according to Fitch).
The transaction is not yet impacted by potential corporate downgrades to General Motors Financial Co. or parent General Motors. Each each carries a BBB unsecured debt rating from Fitch, but are under review for possible downgrades to speculative-grade status by S&P (currently at BBB-) and Moody's Investors Service (Baa3).
The pool consists of 30,545 loans with an average principal balance of $27,548 and original terms averaging 68.58 months. The borrowers have a WA FICO of 771, with 82.64% of buyers holding FICOs of 701 or better.
Almost all the collateral consists of crossover/SUVs (45.6%) and pickup trucks (42.79%). The vehicles were financed at average APRs of 4.53% with loan-to-value ratios of 93.67%. While there was a higher percentage of used vehicles at 17.04% of the pool, more than 39% of the loans benefited from manufacturer new-vehicle incentives – the highest level of subvented contracts since late 2018.
Excess spread in the deal decreased to 2.2% (before pricing) from 3.5% (after pricing) for GMCAR 2020-1, “largely due to higher bond coupon expectations,” according to Fitch.
The transaction is GM Financial’s 13th securitization to date, since it launched its ABS platform in 2017 three years after launching prime-loan originations through GM. (Although GM’s historical captive finance partner, Ally Financial – formerly GMAC – still has legacy captive-finance ties to GM dealers, GMF obtained exclusive promotional ties for GM-subvened loans in 2016).