California Republic is marketing another $400 million auto loan securitization, its second of the year.
The deal, California Republic Auto Receivables Trust 2016-2, will issue a money market tranche and three term tranches with preliminary triple-A ratings from DBRS and Standard & Poor’s. All benefit from initial credit enhancement of 10.2%. There are also two subordinated tranches; one rated single-A with credit enhancement of 3.45% and another rated triple-BBB with 0.25% credit enhancement.
The notes are backed by a pool of prime and what DBRS terms “near-prime” loans: 50.54% of the receivables are owed by obligors with FICO scores of 680 or better and 30.55% are owed by obligors with FICOs of 640 to 679.
The credit quality of the portfolio is similar to that of previous California Republic transactions. The majority of the loans, or 77%, finance used vehicles. The average principal balance is $20,480.26 and the weighted average loan to value ratio is 113.49%.These loans have a weighted average term of 69 months and have been seasoned one month.
In April 28, California Republic announced that it has entered into an agreement to merge with Mechanics Bank, a full-service community bank headquartered in Walnut Creek, California, with $3.6 billion in assets. The merger is expected to provide CRB with additional capital and liquidity to expand its auto lending activities.
Once the merger is completed, Mechanics will succeed California Republic in its capacities as servicer, seller and administrator under the transaction documents. However all servicing and customer interface services will remain the same under California Republic.
Westlake Services is also marketing $550 million of notes backed by subprime auto loans.
The deal, Westlake Automobile Receivables Trust 2016-2, will issue seven classes of notes with preliminary ratings from DBRS; the senior term notes, which benefit from credit support of 37.44%, are rated ‘AAA.’
The company originates indirect loans through independent dealers and franchise dealers. The rate of growth has increased dramatically from the franchise dealers, which accounted for 62.7% of loans as of April 2016. These loans are generally of lower credit quality.
The weighted average FICO score of loans for the 2016-2 transaction has increased slightly, to 604 from 600 in the 2016-1 transaction, according to DBRS. However, the mix of receivables from the sponsor’s higher quality Gold and Platinum programs has also decreased slightly to 39.89% from 40.02%.
The average loan size is slightly larger, at $10,945 compared with $10,252 for the previous transaction and the weighted average loan term has risen to 52 months from 51 months.
Given the overall change in collateral mix, DBRS has increased its base-case expectations for cumulative net losses to 12.25% for the 2016-2 transaction compared with 12.00% for the 2016-1 transaction.