Avid Acceptance, an auto lender that courts consumers emerging from bankruptcy, is making its fist trip to the securitization market.
The $114 million transaction, Avid Automobile Receivables Trust 2018-1, received preliminary ratings Monday from Kroll Bond Rating Agency, which expects to assign an A to the senior, $91.7 million tranche of Class A notes supported by 24.65% credit enhancement.
Two other tranches of rated notes will be issued; a $12.4 million Class B tranche due July 2024 is provisionally rated BBB and $10 million of Class C notes due February 2025 are provisionally rated BB.
The notes ares supported by $95 million worth of loans with an average balance of $17,285 and APR of 18.05%. A prefunding account arrangement through June allows Avid to build the collateral up to $120 million. The loans finance primarily used cars (93% of the pool) and have a weighted average term of 70 month and weighted average loan-to-value ratios of 125.91%.
The pool's weighted average FICO is 546, with more than 50% of the pool consisting of scores below 550 (23.52% were between 351-500). While those scores are normally reflective of deep-subprime borrowers with extensive credit issues, Avid underwrites loans to consumers who had satisfactory credit profiles prior to a recently filed or discharged Chapter 7 or 13 bankruptcy.
With an expected weighted average coupon of 4.06%, the total gross excess spread from the average APR (and minus servicing fees) is 10.98%.
Kroll expects net losses on the portfolio to be in the range of 11.7% to 13.7% over the life of the transaction.
Avid, headquartered in Salt Lake City, Utah, believes these post-bankruptcy loans perform better than traditional subprime loans since the discharged debt will reduce a borrower's debt burden – and these borrowers would be precluded from filing for bankruptcy protection again for several years, according to Kroll.
Avid was founded in 2009 and originally purchased loans originated by independent and franchised deals. It only began originating “sizable” volumes in the fourth quarter of 2012 and since then has grown its portfolio incrementally, according to Kroll. “Avid has been disciplined in its approach to growth, focusing on bottom line, net income growth instead of top line growth,” the presale report stated.
The company warehouses loans using a $70 million line of credit from three regional banks; the warehouse line was recently renewed for a two-year period. To date, the company has relied on whole loan sales for longer-term funding; it has sold 42 pools of loans at par to commercial banks and private investors while maintaining servicing on the accounts. Twenty-six of these loan pools, with a combined original balance of $96 million, have been paid off in full.
The loans being securitized comprised most of Avid’s $102.6 million managed portfolio as of Dec. 31, 2017.
Avid is an associate company of the Quorus Group, a shared-ownership firm that also includes equipment-finance firm Tetra Financial Group and a commercial real-estate lending arm, Quorus Commercial.