Byrider Finance LLC is not faring well in the battle of the bottom-feeders.
Byrider, an Indiana-based used-car chain operating as J.D. Byrider, is undergoing a third consecutive year of continuing high-credit losses, according to S&P Global Ratings.
It has also experienced a weakened base of riskier borrowers and greater-than-expected losses in managed loan portfolio. S&P cites the growing competition from “buy here, pay here” lots and more subprime lenders bidding for last-chance borrowers.
“In our view, this segment of the market has been especially vulnerable to the prolonged, highly competitive environment in which several large lenders had begun to buy deeper in the credit spectrum,” S&P’s report stated. “This likely caused them to be adversely selected, resulting in a weaker borrower profile.”
As a result, S&P assigned ratings to each of the three tranches of notes to be issued in Byrider’s latest, $126.3 million securitization that are one notch lower than those of the sponsor's previous deal.
The Class A notes are rated A, down from AA for the senior tranche of the previous deal; the Class B notes are BBB, down from A for the same tranche of the prior deal; likewise, the Class C notes are rated BB vs BBB.
The subordination and CE levels have increased slightly – the Class A notes are supported by credit enhancement of 49% compared to the A-rated Class B notes last year at 52% – but the new deal includes a new $15 million prefunding account that will allow the sponsor to add new loans to the collateral pool after closing.
The weighted average FICO of 545 is not much weaker than Byrider’s previous securitizations (ranging from 545 to 550). Still, mounting losses on its outstanding 2015 securitization have prompted S&P to twice revise its expections for losses upward, from an original range of 26.75%-27.25% to 33%-34% – which is the range assigned to the new 2017-1 deal.
The 2017-1 transaction is backed by a pool of 13,789 loans totaling $162.6 million, with a principal balance of $13,086, average APRs of 20.83% and remaining terms of 45.3 months. (The average original term is 53.4 months, with the company offering no loans longer than five years.) Most borrowers (85.44%) make biweekly payments.
The loans are secured by aging, high-mileage used cars (between four and 10 years of age with 75,000-125,000 in mileage that Byrider typically purchases through wholesalers for between $4,000 and $7,000 apiece.