The changes in terms on Byrider Finance’s subprime auto ABS deal compared to its predecessor illustrate how the COVID-19 pandemic is taking its toll.
The $118.7 million transaction is split into five pieces, increasing the number of tranches over its 2019 deal by adding a $6.3 million, B-rated Class E portion with lower credit enhancement. Kroll Bond Rating Agency gives the top $66.9 million tranche a AA rating.
The rating agency says it “believes the economic effects of COVID-19 have the potential to impact this transaction and Byriders business operations,” including its financial performance and liquidity, originations and the credit performance of its portfolio.
The collateral for the two deals is comparable, Kroll says, but the reserve account to fund the special-purpose vehicle’s expenses when they exceed income was increased to 2% from 1.5% last year.
In addition, initial credit-enhancement protection for investors increased significantly between the CNART 2020-1 and its predecessor across all the tranches. For the Class A portion it jumped 9.3%, to 56.8%, and on the Class B and Class C portions it was up more than 10% each, respectively, to 44.8% and 34.8%. The increases in target credit enhancement are even higher.
“The transaction is structured to delever, thereby increasing the level of credit enhancement over time, which is beneficial to the maintenance of the note ratings,” Kroll says.
The $135 million, CNART 2019-1 deal priced at 85 basis points over Treasurys on the AA tranche; 115 basis points over for the single-A piece; 185 basis points over for the BBB portion; and 315 basis points over for the BB tranche, according to Finsight. That deal was led by Deutsche Bank Securities.
Kroll describes Byrider’s numerous responses to the COVID-19 pandemic, which has hit the company’s lower credit quality customers especially hard. Starting in April it increased cash-down requirements and raised cutoff credit scores, eliminating nearly a third of its “tier 2” loans. In March, it implemented a phone-based sales and underwriting process, including a home delivery option, to minimize personal contact.
Byrider had temporarily closed 12 of 32 stores as of Kroll’s June 25 presale report. The economic conditions, store closures and underwriting changes lowered originations significantly more than the company anticipated, the rating agency said.
