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Auto loan/lease ABS pipeline grows by $3.8B

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Four asset-backed issuers in both prime and subprime auto loans and leases have returned to market with new deals totaling over $3.8 billion.

CarMax Auto Finance, BMW Financial Services North America, Santander Consumer USA and Credit Acceptance Corp. have each launched their second or third loan and lease deals of a busy 2017, which has seen over $35 billion of prime auto loan, $12.31 billion in prime lease and $19.4 billion in subprime auto securitization volume this year.

Investors are still lining up for the deals, despite the fact that Thursday S&P Global Ratings reported deteriorating year-over-year performance for existing rated deals. Prime recoveries, for example, fell to 50.4% in August from 54.9% a year earlier.

And many analysts expect existing ABS deals to face further performance challenges in the fourth quarter as loans on vehicles exposed to Hurricanes Harvey and Irma experience deinquencies, defaults or insurance-payoffs.

BMW Financial Services NA

What goes up, must come down.

The $1 billion BMW Vehicle Least Trust 2017-2 is a follow-up to the German automaker’s $1.17 billion least trust issuance in March that established the highest-ever average FICO for a BMW North American lease pool of 785. It’s only 784 in the new collateral pool, which still qualifies it as having the second-best mark for a BMW collateral pool, and still among the most elite collection of borrowers for a luxury-car lease or loan securitization in the U.S.

Like previous deals, BMW 2017-2 will issue four series of Class A senior notes, including a first-position Class A-1 $175 million money-market tranche. A $380 million Class A-2 series due 2020 will be divided between fixed- and floating-rate tranches (the A-2b floating rate class won’t exceed $190 million); a Class A-3 tranche is sized at $350 million with an October 2020 maturity, and a four-year Class A-4 series totals $95 million.

Fitch Ratings and Moody’s Investors Service have each assigned preliminary triple-A ratings.

The Initial excess spread is 4.81%, and the credit enhancement at launch is 15.65%. The CE level is up from 14.65% from this year’s earlier offering, but is the lowest of any of BMW FS’s other deals since 2012. Although credit losses have been stable (Fitch assigns a credit-loss proxy of 0.8%), the company’s residual performance on returned vehicles has softened in 2017, particularly for the 3 series passenger vehicle line.

Luxury cars historically offer greater risk of decline in vehicle values, which has prompted BMW to include more vehicles at lower price points into recent collateral, according to Fitch. Over 83% of the residual cash flows from leases not coming due until 2019 and beyond, making used-car price projections in the deal difficult to project.

To counter residual weakness, BMW has increased the concentration of light truck/SUVs in the pool to 41.6%.

The aggregate balance of receivables is $1.18 billion on 33,054 leases, with an average seasoning of 10 months.

Fitch’s credit-loss proxy is 0.8%, unchanged from the BMW 2017-1 transaction.

CarMax Auto Finance

CarMax Auto Finance, the captive finance arm of the nationwide used-car retailer CarMax Business Services, has slightly improved the credit characteristics in the $1.05 billion CarMax Auto Owner Trust (CAOT) 2017-4, its fourth securitization in 2017.

The average FICO score is slightly up (709 from 704), with the percentage of loans to borrowers with scores over 700 increasing to approximately 50.25% from 47.67%. CarMax reduced its loans to those with no FICO score to 0.85% of the pool from 1.03%, and decreased the average annual percentage rate on loans to 7.46% from 7.58%. The percentage of loans with terms longer than 60 months is similar (59%) from the prior transaction (60%).

CAOT 2017-4 pools 64,844 prime auto loans, though CarMax could upsize the deal to $1.28 billion by boosting the collateral to 78,958 loans.

The loans, seasoned an average of 4.34 months, will back eight classes of senior and subordinate notes. The senior classes include a $212 million Class A-1 money-market tranche, and three bond tranches with preliminary triple-A ratings from Fitch Ratings and S&P. Those notes consist of a $363.3 million split fixed- and floating-rate Class A-2 series with April 2021 maturities; a $310 million Class A-3 tranche due 2022, and $92.25 million Class A-4 tranche due 2023.

The senior notes are supported by 7.15% initial credit enhancement, lower than the 7.6% in the prior deals, but still above that the 6.85% in CAOT 2017-2%.

S&P expects loss to range from 2.15%-2.25%, unchanged from the original projections for both the 2017-3 and 2017-2 transactions. Fitch has established a loss proxy of2.4%, narrowly up from is 2.2% projection for the CAOT 2017-2 transaction it last rated for CarMax.

Losses in CAOT transactions have been trending higher, “with some softening in recovery rates and an uptick in delinquencies, which could persist going forward,” reported S&P.

Credit Acceptance Corp.

Credit Acceptance Auto Loan Trust (CAALT) 2017-3 is the third senior-subordinate offering by the long-time indirect subprime lender. The $350 million transaction that includes a $233.6 million Class A, triple-A rated tranche of bonds backed by subprime auto loans originated by Credit Acceptance Corp., which has sponsored a total of 22 prior securitizations.

The Class A notes are supported by 61.3% credit enhancement, consisting of 40.3% overcollateralization, 19.9% subordination and a 1.2% cash reserve account.

The pool’s high-interest loans (an average of 23.9%) average 54 months with a balance of $10,337.

Unlike other indirect lenders, Credit Acceptance does not acquire most of the consumer notes it underwrites. It instead issues advances to independent dealers (which are secured by pools of consumer notes) and services the loans for a fee equal to 20% of collections – with the remainder used for dealer advance repayments. The dealer advances assume a certain percentage of collections and defaults over the life of the loan, which along with a dealer’s own internal CAC rating system.

The collateral in CAALT 2017-3 includes 71% dealer loans and 29% purchased consumer loans.

DBRS calculated a 30.77% cumulative net loss for the 2017-3 pool; Moody’s set expectations at 27%. Moody’s said CAC mitigates the high-risk borrower pool with tight amoritization triggers should cash-flow collections take a significant drop; the deal also includes a full turbo feature when the amortization period starts; that feature has typically paid down CAALT notes within a year.

The collateral includes defaulted loans totaling 12.5% of the total consumer notes, according to presale reports from Moody’s and bond rating agency DBRS.

The transaction includes a two-year reinvestment period, similar to prior CAALT transactions, in which principal payments will be used for acquiring new collateral rather than paying down notes.

Santander Consumer USA

The $1.25 billion Drive Auto Receivables Trust (DRIVE) 2017-3 pools Santander Consumer USA’s deep subprime new- and used-car loans that don’t conform to standards for its SDART and Chrysler Capital Auto Receivables Trust securitization platforms. DRIVE 2017-3 is the 12th transaction from this shelf, according to S&P Global Ratings.

The transaction carries the standard senior-note capital structure of previous DRIVE deals: a fixed-rate money market tranche of totaling $170 million and $377.91 million in fixed- and floating-rate Class A notes due in 2019 and 2020. The Class A notes are triple-A rated by S&P, Moody's and Fitch, and are supported by 65.3% initial hard credit enhancement – similar to the three previous DRIVE deals.

It’s the third transaction in which Santander has provided loan-level reporting that divulges more data such as the percentage of loans with proof of income verification (20% in the latest deal).

Some of the significant changes to DRIVE 2017-3 from the prior deal is the extended pool seasoning to five months from two months, and the decline in longer-term loans (73-75 months) to 9.35% of the pool from 15.55%. The non-zero weighted average FICO decreased slightly to 565.5 from 567.8.

Like other recent auto ABS deals, Santander is reducing exposure to storm-damaged regions in Texas and Florida. The Texas exposure has been reduced to 14.58% of the pool from 16.24% in Santander’s previous Drive transaction; Florida was shaved to 7.1% from 10.2% from the 2017-3 deal. Any loan potentially connected to Hurricanes Harvey or Irma were taken out of the final pool.

S&P is maintaining a CNL of 27-28%.

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Auto ABS Auto leasing Subprime lending CarMax BMW Financial Services NA Credit Acceptance Corp Santander Consumer USA Moody's S&P Fitch DBRS