Ally Bank’s fourth securitization of prime auto loans in 2019 includes a new feature that might raise some investors’ eyebrows: no required buybacks of modified loans.
According to Moody’s Investors Service, the $1.05 billion Ally Auto Receivables Trust 2019-4 transaction will drop a mandatory repurchase agreement involving loan modifications that was included in Ally’s prior asset-backed pools of new- and used-auto loan contracts underwritten directly through partnering dealerships.
Under previous issues from its AART platform, Ally was required take back loans assigned to ABS pools if the bank – acting as the loan servicer – later made changes to the amount financed, the annual interest rate or the number of scheduled payments on a borrower’s contract.
Moody’s noted in a presale report issued Monday that the new voluntary repurchase policy for AART 2019-4 could expose the pool to slightly higher losses than prior deals since modified loans have historically higher proportions of defaults and delinquencies.
But such modifications are rare with prime assets, and would seemingly have minimal impact on loss expectations on the latest prime-quality pool from Ally, a frequent ABS issuer. Moody’s projected cumulative net losses (CNL) for the deal represent only 0.95% of the initial pool balance, up 0.05% compared to the most recent Ally-sponsored deal rated by Moody’s in September (AART 2019-3).
S&P Global Ratings is maintaining a 0.95%-1.05% loss range for the 2019-4 pool, equal to the expectations for AART 2019-3. “[T]hese permitted modifications are limited and represent minimal percentages compared to the overall securitized pool balances,” S&P’s presale report stated.
The 2019-4 pool features one of Ally’s highest-ever weighted average (WA) borrower FICO score of 741 and a greater proportion of longer performing loans (WA seasoning of 14 months).
The transaction will include four classes of senior Class A notes totaling $991.7 million – or 94.4% of the full capital stack. A $252 million money-market tranche at the top of the payment waterfall has top preliminary short-term ratings of P-1 by Moody’s and A-1+ by S&P.
The agencies assigned triple-A ratings to each of three senior term tranches. The Class A-2 notes due 2022 and the Class A-3 notes due 2024 will total a combined $660 million; initial principal balances of $330 million (Class A-2) and $336 million (Class A-3) are subject to change prior to close.
The Class A-4 notes tranche due 2025 is sized at $73.7 million.
Ally is also marketing three subordinate note tranches: a $22.06 million Class B tranche rated Aa2; an $18.38 million Class C tranche rated A1; and a Class D tranche totaling $13.66 million, rated Baa1.
The subordinate notes apply a cushion of 5.15% against credit losses to the senior notes, which also benefit from asset overcollateralization of 0.45% (climbing to a target of 1.3% of the pool), and a non-declining reserve fund of -.25%.
The transaction will collateralize 66,361 contracts, mostly from new vehicles representing 70% of the pool balance. The average contract length is 67 months, which is one month longer than AART 2019-3.
More than 36% of the vehicles financed are General Motors-branded cars and trucks, a legacy of Ally’s former captive-finance relationship with the automaker before GM established its own in-house finance arm (GM Financial). Ally also maintains relationships with Fiat Chrysler dealerships stemming from its former preferred-lender ties; those vehicles provide 18.9% of the pool assets.
Although new-car assets remain proportional to previous Ally deals, the lender’s managed portfolio grew mostly due to more originations in used-car loans in 2019. As of Sept. 30, Ally Bank had 3.457 million outstanding retail contracts in its portfolio, of which 2.1 million were for used vehicles – driven by increased demand for pre-owned autos by consumers increasingly priced out of the new-vehicle market.
