California Republic Bancorp.’s first auto loan securitization of the year pools loans of slightly better credit quality, according to Standard & Poor’s which is rating the deal.
But S&P expects cumulative losses for loans in the latest deal will be in the same range, 2.40%-2.60%, as its previous deal, completed in December. That’s because the performance of the bank’s loan portfolio has weakened.
California Republic Auto Receivables Trust 2016-1 is backed by prime auto loans that the bank purchased from franchised and independent auto dealers. The weighted average FICO score of borrowers in this deal is 699, up slightly from 696 in the previous deal. Loans with a FICO score of 500-579 decreased to 1.07% from 1.12%. The percentage of loans with no FICO score (some of which many be commercial loans) increased to 0.12% from 0.07%.
The payment-to-income (PTI) ratio continues to decrease from deal to deal and is down to 7.44% from 7.58%; the series 2016-1 has the lowest PTI ratio of any S&P-rated transaction.
The weighted average loan-to-value ratio decreased, to 112.33% from 115.97%.
One credit metric continues to deteriorate, however. Loans with terms of 61-75 months increased to 79.85% from 78.38% of collateral, and loans with 73- to 75-month-term loans increased to 12.96% from 12.17%. Long loan terms lower monthly payments; they are used to help borrowers purchase cars they otherwise couldn’t afford. The length of the term also extend the period which the borrower is “underwater” on the loan, owing more than the value of the vehicle. That tends to reduce the amount that can be recovered when the borrower defaults.
Another change to the latest deal is that it will be registered deal with the U.S. Securities and Exchange Commission, whereas the previous transaction was a private placement. The SEC-registered transactions generally price better than privately placed ones.
The securitization trust will issue a $61.8 million money market tranche and three fixed-rate, term tranches with preliminary ‘AAA’ ratings from S&P: $120 million with a legal final maturity of December 2018; $110 million maturing in May 2020; and $109.48 million maturing in October 2021.
Credit Suisse Securities it the underwriter.
California Republic Bancorp was founded in December 2007 by the two former executives of Western Financial Bank. The lender grew its portfolio by 70% in 2015 to $2.57 billion, albeit at a slower pace than in 2014.as of Dec. 31, 2015.
As of Dec. 31, 2015, the total delinquency increased to 2.08% from 1.30% a year ago, and the annualized net loss increased to 0.80% from 0.65% a year prior.