Ally Bank is marketing another $1 billion auto loan securitization, its third of the year.
As with Ally’s previous two deals, the collateral for Ally Auto Receivables Trust 2017-3 includes a high proportion of used cars and loans with longer terms, both of which increase risk, according to Moody’s Investors Service. The deal also features fewer “subvented” loans with very low interest rates designed to entice buyers who would otherwise pay in cash.
Securitizations that Ally completed in 2016 are performing worse than previous vintages and have higher losses than previously expected. As a result, Moody’s this month increased our expected loss for the 2017 deals from 0.75% to 0.85%. [By comparison, its most recent projected losses for Ally's outstanding prime transactions are 0.50% for the 2013 transactions, 0.45% to 0.65% for the 2014 transactions, 0.50% to 0.65% for the 2015 transactions, 0.75% for the 2016 transactions, and 0.85% for the 2017
Nevertheless, the 2017-3 deal achieved the same credit ratings as Ally’s two prior deals without offering any higher credit enhancement.
There is $270 million money market tranche and three term tranches with preliminary Aaa ratings from Moody’s Investors Service: $371.37 million due in march 2020, $271.37 million due in September 2021, and $86.01 million due in March 2022. All four senior tranches benefit from credit enhancement of 5.85%.
There are also three subordinate tranches with ratings ranging from Aa3 to Baa2.
The proportion of loans for the purchase of used vehicles in AART 2017-3 is 30%, consistent with recent AART deals but higher than AART deals closed before 2013. That’s a concern because the recent trend of declining used car prices could expose the transaction to a lower recovery rate and higher loss severity, and consequently a higher net loss.
Used vehicle backed loans in deals closed prior to 2013 typically composed well under 20% of the collateral pool balance.
Approximately 66% of the loan pool balance is composed of contracts with an original term greater than 60 months. In addition, 11% of loan balances in the AART 2017-3 pool were originated with original term greater than 72 months.
Just 4.9% of the loan balances in the AART 2017-3 pool are derived from subvened loans compared to 5.5% in the AART 2017-2 pool and 6.4% in the AART 2017-1 collateral:
The 2017-3 pool’s weighted average FICO of 738 is on the lower end of recent AART transactions, as the weighted average original term of 66 months and the weighted average LTV of 94%.
However, the weighted average APR of 5.35% is the highest for any AART deal excluding the recently closed AART 2017-2 deal.