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Capital One returns to prime auto ABS in $1.23 billion deal

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Capital One is re-entering the prime auto-loan securitization for the first time since 2007, according to presale reports issued Wednesday.

Capital One (NYSE: COF) is sponsoring a $1.23 billion bond offering backed by receivables from 65,867 indirect auto loans the lender underwrote to auto buyers through partnering dealers. The loan terms average 66 months with eight months' seasoning for the pool.

Capital One Prime Auto Receivables Trust 2019-1 is the first transaction since the financial crisis to be sponsored by Capital One, which had been a frequent issuer of deals prior to 2008.

Capital One enters the busy prime auto ABS market with one of the strongest portfolios of borrowers in the space, according to S&P Global Ratings. The weighted average FICO of 779 and the minimum score of 700 make is among the highest FICO-band of ABS issuers in recent years, the agency stated.

The bonds being sold include a money-market tranche of $238 million, with an A-1+ preliminary rating from S&P, a P-1 from Moody’s Investors Service and F1+ by Fitch Ratings. A $410 million tranche of Class A-2 notes due 2022, an A-3 tranche, also $410 million, due 2023 and a $124.62 million Class A-4 notes offering due 2024 all carry preliminary triple-A ratings from each agency.

The Class A notes benefit from 3.75% credit enhancement.

Rounding out the capital stack is an $18.39 million Class B tranche rated AA by Fitch and S&P, while maturing in 2024; an A-rated Class C tranche due 2024 totaling $12.26 million; and a Class D tranche rated BBB, also sized at $12.26 million and due 2025.

Moody’s did not rate the subordinate notes.

JPMorgan is the lead underwriter.

Capital One’s managed portfolio was $15.6 billion as of March 31, a decline from $17.5 billion the year prior despite the fact auto loans were up three percent year over year in 2018, according to S&P.

Last year, the company originated 327,105 loans with an aggregate principal balance of $7.45 billion. The weighted average APR for the loans was 4.44%, with the issued loans almost evenly divided between loans for new vehicles (50.4% of the pool) and used (49.6%). The weighted-average loan-to-value ratio of 2018 originations was 91.8%.

Annualized net losses fell to 0.11% from 0.13%. Thirty-day-plus delinquencies are 0.28% year-to-date in 2019.

S&P’s expected net loss is 0.6%-0.7%, while Moody’s projects 0.5% expected cumulative net losses.

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Prime auto ABS Capital One