Bank of the West’s first prime auto-loan securitization in two years features a significantly weaker credits, with lower FICO scores and its largest-ever allotment of loans with extended terms.
According to presale reports published this week by Moody’s Investors Service and S&P Global Ratings, loans backing the $750 million Bank of the West Auto Trust (BWSTA) 2017-1 have an average FICO of 745. That's comparable to recent transactions from other lenders not affiliated with automakers, but is below the 774 average of its prior deal, completed in 2015.
Moreover, borrowers with FICOs below 700 now comprise 25% of the pool, up from 11.6%.
In addition, about 60% of the loans backing the latest deal have original terms exceeding 72 months, compared with less than 40% for the bank's previous two securitizations. The average original term for than 26,000 loans in the pool is 76 months, and many of loans have only modest seasoning, leaving investors with loans with average remaining terms of 71 months.
The five-month seasoning in the current pool is less than one-third that of BOW’s prior deal, which was seasoned by 15.1 months, on average.
Another risk factor: The loans are more highly leveraged, with a weighted average loan-to-value of 105.2%, up five percentage points from the previous deal.
To mitigate the higher risk, borrowers are paying a higher rate of interest, with an average APR of 4.99% , compared with just 3.69% for the 2015 deal. Credit enhancement on the senior tranche of notes to be issues is also slightly higher, at 5.85%, compared with 5.4%.
The capital structure of the 2017-1 deal consists a $134.2 million money market tranche and four senior term tranches. The fixed-rate Class A-2 and A-3 notes are sized at $249.4 million apiece, followed by a Class A-4 notes series totaling $75 million.
The senior notes have staggering maturities between 2021-2023, and are supported by 5.85% hard credit enhancement consisting of 4.5% subordination, initial overcollateralization of 1.1% (growing to 1.8%), a 0.25% non-declining reserve fund, and expected annual excess spread of 1.66%, according to S&P. All are rated triple A by Moody's and S&P.
Moody’s and S&P have assigned preliminary triple-A ratings to the term senior notes; each has assigned its highest short-term rating of P-1 and A-1+ to the Class A-1 tranche.
The trust will keep a 5% vertical slice of each class of notes in order to comply with risk-retention rules.
Both rating agencies note in their presale reports the the longer loan terms prolong investors' exposure to delinquencies, borrower unemployment or downturns in the economy. The San Francisco-based bank’s portfolio losses have already been rising with recent 2016-2017 vintage loans performing worse than the 2014-2015 originations, the presale reports state.
The elevated risk has prompted S&P and Moody’s to double the expected net losses on the current pool compared to BWSTA 2015-1. Those losses are still well within range of other non-captive finance lenders, however.
Bank of the West Auto Trust 2017-1 is the bank’s third securitization since the issuance shelf was launched in 2014. Although relatively new to securitization, the company has been an indirect lender since the 1960s through a network that has grown to 3,400 dealers nationwide.
BOW’s current managed portfolio of loans totals $4.17 billion across 222,841 loans.