Ally Financial plans to issue a fourth offering of bonds backed by subprime auto loans, according to filing with the Securities and Exchange Commission.
The deal will be issued from Ally’s Capital Auto Receivables trust and will be structured with three tranches. Ally was in the market in August with its Capital Auto Receivables 2013-3.
Subprime auto loans ABS issuance has picked up this year. Prime auto loan ABS issuance was $29 billion as of Sept. 23, and subprime was $14 billion, according to figures reported by Standard & Poor’s.
Ally Capital Auto Receivables Trust transactions have constituted a significant portion of the nonprime sector, which is between prime and subprime in credit quality. The issuer’s three prior transactions this year, totaled $3 billion.
“Activity has stemmed from a combination of macro and ABS sector-specific factors, including a modestly improving U.S. economy, more credit availability, and consumers replacing aging vehicles,” said S&P analysts.
According to a September S&P report, the weighted average LTV on S&P rated subprime auto loan ABS pools has increased steadily to 113% in 2012 and 114.5% year to date, from a low of 112% in 2010 and 2011.
S&P said that subprime loans are now being written with longer terms. According to the ratings agency, a 72-month term has become the norm that has replaced the 60-month term for the largest subprime lenders.
S&P also noted a return of loans made to borrowers with lower FICO scores. Some of the more established originators in the space have returned to lending to borrowers sub-600 FICO.
But the decline in credit quality hasn’t significantly impacted the performance of most issuer’s pools. Most deals continue to perform in line with or better that the ratings agency’s initial expectations.