The Bank of Nova Scotia is launching its debut in the U.S. securitization market with bonds backed by auto loans denominated in Canadian dollars.
Securitized Term Auto Receivables Trust (START) 2016-1 will issue US$500 million in Class A auto loan receivables notes, backed by BNS-originated indirect retail installment loans secured by new and used cars, light trucks and utility vehicles.
The initial receivables balance is CAN$739.88 million (US$561.44 million), on 40,722 receivables accounts. That pool figure is reduced to CAN$699 million (US$530.99 million) after the inclusion of a yield-supplement overcollaterization amount (YSOA), a special auto-ABS related credit enhancement feature which compensates for low-rate incentive programs offered by dealers to move inventory (About 66% of the pool is subvented loans or receivables with manufacturers’ incentives.).
The weighted average FICO is 778, with a weighted average APR of 2.57%, average terms of 63 months and seasoning of approximately 19 months. New vehicles comprise 71% of the pool, and no loan exceeds 72 months, even though BNS’ loan portfolio has loans of up to 84 months in length. Over 45% of loans, primarily for new vehicle purchases (71.45% of the pool), have terms of over five years.
START will issue five classes of US-dollar denominated notes, as well as CAN$45.4 million in unrated in domestic Canadian notes that BNS will retain.
The senior notes to be issued include US$115 million in fixed-rate, Class A-1 money-market notes, maturing in one year, that have a preliminary ‘A-1+’ structured finance rating from Standard & Poor’s and a provisional 'P-1' from Moody's Investors Service.
Although it is a first-time issuance for BNS – and lacking historical performance and collateral data – S&P nonetheless assigned ‘AAA’ ratings from both agencies to the three term tranches, due in part to BNS’ extensive and healthy consumer lending performance history.
The most senior notes are in the two-year, Class A-2 tranche sized at US$174 million, which will be split between fixed- and floating-rate notes (the latter to be based on one-month Libor).
Also being issued are $150 million in four-year, Class A-3 notes and US$61 million in Class A-4 notes due in February 2021.
The Class A notes are supported by 6.64% of initial credit enhancement, including 6.14% subordination and a 0.5% reserve account. Including excess spread, credit support is ramped up to 8.5%, well above what S&P has projected for an expected cumulative net loss range of between 1.3% and 1.5%.
The first-ever securitization comes as BNS’ managed portfolio of loans has ballooned to 655,431 loans, with an average aggregate outstanding balance of CAN$14.33 million. That nearly doubles the amount of receivables oustanding from 2013 (CAN$8.09 million).
Underwriters on the deal include Scotia Capital, Barclays, Bank of America Merrill Lynch and JPMorgan Securities.
