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Honda weighs upsizing of $1.35B auto-loan ABS

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American Honda Finance Corp. (AHF) is weighing a potential upsizing of its first retail auto-loan securitization of 2020.

According to presale reports, a $1.35 billion bond offering backed by prime vehicle-loan contract originations through Honda Automobile Receivables 2020-1 Owner Trust (HAROT 2020-1) might potentially grow to $1.62 billion by the expected Feb. 26 pricing date, depending on market conditions.

Honda’s dual-pool proposals are not unusual for the captive-finance arm of American Honda. AFH’s most recent sponsored securitization (HAROT 2019-4) last November was ultimately upsized to the same $1.62 billion after an initial prospectus offering of $1.35 billion.

HAROT 2020-1 is the 78th term securitization sponsored by American Honda Finance.

Both pools have three classes of term notes with preliminary triple-A ratings from Moody’s Investors Service and Fitch Ratings. The Class A-2 dues due October 2022 are sized at either $483 million or $579 million (if upsized); Class A-3 notes with an April 2024 maturity totaling $431 million or $517 million; and the Class A-4 notes maturing in October 2026 will be offered either at $94.8 million or $113.95 million.

A one-year money-market Class A-1 tranche will be $307 million or $369 million, with each agency’s highest short-term rating of P-1 (Moody’s) and F1+ (Fitch).

AHF is offering a slightly lower percentage of one-year notes (22.79% of the capital stack) than recent-vintage HAROT transactions, although it is in line with last November’s securitization.

AHF has populated each pool with prime loans with similar characteristics: average remaining contract balances of approximately $20,360 each, a weighted average FICO of 772, average annual APRs of 2.74% and weighted average original terms of 61 months (with 12 months seasoning). About 77% of each pool includes loans originated to borrowers meeting American Honda Finance’s highest internal tier credit score (Tier A).

Over 93% of each pool consists of new Honda or Acura-branded vehicles.

Approximately 27% of the pool collateral comes from extended-term contracts over 61 months, similar to AHF’s last three transactions.

AHF’s managed portfolio had $30.6 billion in outstanding loan balances as of Dec. 31 among 1.88 million contracts. Delinquencies were up slightly in 2019, although still low in comparison to other captive-finance lenders: 1.18% for 31-60 days and 0.29% for 61-90 days. Net losses were 0.48%, up slightly from 2018’s 0.44%.

Moody’s, which notes HORAT transactions have had among the lowest cumulative losses of any prime auto-loan securitization, is maintaining a 0.5% CNL projection in line with previous ABS deals from AHF that Moody’s rated. Fitch’s is slightly higher at 0.9%, after incorporating “slowly” rising losses across the auto ABS industry and some weakening trends in AHF’s 2014/2015-vintage deals.

JPMorgan is the lead underwriter.

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Prime auto ABS American Honda Finance