AmeriCredit Financial Services and DriveTime Car Sales have each launched a third securitization of subprime auto loans for 2017, totaling $1.62 billion in new notes.
AmeriCredit Automobile Receivables (AMCAR) Trust 2017-3 is an issuance of $1.23 billion in notes backed by auto loans to subprime customers of franchised General Motors and independent dealers partnering with AmeriCredit, a subsidiary of GM Financial since being acquired by the automaker in 2010.
AMCART 2017-3 includes a $227 million one-year money tranche, a split $404.8 million fixed- and floating-rate series of Class A-2 senior notes and $240.56 million of four-year bonds in the Class A-3 tranche.
Both Moody’s Investors Service and bond rating agency DBRS assigned preliminary AAA ratings to the senior notes in the deal, the company’s 43rd overall transaction since 1994.
Both ratings agencies report the new transaction is similar to the credit quality of recent AMCAR collateral pools, with similar levels of credit enhancement (35.2%) and borrower FICO scores (577). Moody’s has projected cumulative net losses remaining at 9.5%.
AMCAR 2017-3 does have a larger percentage of new vehicles in the mix (61%, compared with 56% for AmeriCredit’s $1.4 billion auto-loan securitization in May).
While maintaining ties to independent dealer partners, AmeriCredit has gained an increasing share of General Motors’ captive finance activity from Ally Bank. In the second quarter of this year, it financed 42.6% of all GM retail sales – compared to 13.4% at the end of 2014, according to Moody’s.
The 63,339 contracts in the pool were gathered from the $26 billion AmeriCredit portfolio of loans that AmeriCredit has originated and serviced for consumers with prior credit blemishes. Most of the borrowers in the 2017-3 pool had FICO scores between 550-599 (46%) and 600-649 (31%), consistent with recent AMCAR deals.
Delinquencies have been reduced in recent years from the portfolio, down to 5.1% as of March 2017. Those levels had peaked at around 10% in 2013.
Moody’s warned, however, that the transaction may face pressure from the decline in used-car market prices affecting all subprime lenders, which “can expose the transaction to a lower recovery rate and higher loss severity,” the report stated. “However, AMCAR transactions tend to perform better and more consistently than other subprime transactions.”
DT Auto Owner Trust 2017-3
Drivetime Auto Owner Trust 2017-3 is a $442.78 asset-backed note series that features a $193.88 million in Class A notes due 2020. Both S&P Global Ratings and DBRS have issued preliminary AAA ratings on the senior multi-year notes.
It is the 60th transaction for DriveTime since 1996, according to DBRS.
Hard CE level is at 66.25%, similar to the 66.28% credit support for the $442 million DT Auto Owner Trust 2017-2 transaction in May, according to presale reports. (Neither figure includes available excess spread).
According to presale reports, subordination and overcollateralization levels have increased slightly from DriveTime’s previous securitization in May. The Class A subordination level rose to 45.51% from 45.25%, and the OC increased to 19.25% from 19.25%. However, the target OC figure decreased to 24.25% from 24.75%, according to S&P.
The notes are also supported by a non-declining reserve account that will maintain at 1.5% of the collateral pool.
S&P has projected a cumulative net loss range of 29.5%-30.5%, similar to DriveTime’s last three deals from its auto-owner shelf, despite some mild credit improvements. DBRS has projected 31.5%, a decline from 32.25% in DT 2017-2, citing the company’s improved recovery rates and other performance attributes in recent deals, partially a result of the company unbundling contract warranties from pools.
The weighted average FICO for the deep subprime borrowers in the pool increased to 542 from 538; while the percentage of loans to borrowers without FICO scores declined to 19.51% of the pool, from the 19.74% figure in DT Auto Owner Trust 2017-2.
DriveTime also reduced its dependence on lengthier terms by shaving the percentage of 67-72 month borrowers in the pool to 55.12% from 57.4%, resulting in a slight climb of owners with original terms between 61-66% (increasing to 30.08% from 29.51%).
S&P’s report stated that the “slightly stronger credit grade is balanced off,” however by a higher average auto mileage (75,437) and lower APR charged to borrowers (19.76%) from the prior deal, “which are credit negatives.”
In the first quarter, net charge-offs increased to an annualized level of 14.2% in DriveTime’s $4.5 billion servicing portfolio from 12.8% at the same time in 2016.
In addition, DriveTime has experienced growing levels of delinquencies in its portfolio in recent years, reaching above 15%. Growing delinquencies are a common issue with many subprime asset-backeds, but S&P said DriveTime’s delinquency levels are partially attributed to its more liberal charge-off policy since 2011 that extended workouts to loans that reached up to 120 days past due from the prior 91-day enforcement mark.
