Retail installment sales contracts from a pool of new and used automobiles will secure the at least $1.1 billion on forthcoming notes from the CapitalOne Prime Auto Receivables Trust, series 2023-2.
Moody's Investors Service says it expects a cumulative net loss (CNL) rate of 0.40% on the COPAR asset pool, with a loss on the 'Aaa' stress of 3.50%. BofA Securities is lead arranger on the deal, according to FitchRatings, with RBC Capital Markets, Wells Fargo Securities and Capital One Securities as lead underwriters on the deal, according to Moody's.
Ratings analysts assessing the deal note that Capital One, subsidiary of CapitalOne Financial that has more than 20 years of originating and servicing these types of auto purchase contracts, which lends confidence to the credit of the notes. In a more neutral sense the notes have consistent hard credit enhancement, which is in line with all previous transactions since the 2019-2, and they have sufficient loss coverage.
Yield supplement overcollateralization (YSOC) provides excess spread on the notes, of about 8.94%, helps provide excess spread to the notes, according to Fitch. The YSOC is set to adjust to a weighted average (WA) annual percentage rate (APR) amount from 5.13% to 9.01%.
On a WA basis the notes have a WA FICO score of 700, an original term of 69 months, and a loan-to-value (LTV) ratio of 93% for the three pools.
Yet the notes, which have final maturity dates—ranging from Oct. 15, 2024 through Dec. 17, 2029—do have a couple of challenges, as Moody's notes. The notes have an unhedged floating rate liability that rests with the class A-2b notes, and they are at risk of further decline in used vehicle prices, the rating agency said, leading to lower recovery rates and higher loss severities on the supported notes, Moody's said.
Regardless of the amount in notes issued, total hard initial credit enhancement is 3.25% on the classes A1 through A4, 2.25% on the class B notes; 1.25% on the class C notes and 0.25% on the class D notes, according to Moody's.
The rating agency intends to assign P-1 to the class A1 notes; 'Aaa' to the A2 through A4, 'Aa1' on the class B notes; 'Aa2' to the class C notes; and 'A1' to the class D notes.
For its part Fitch says will assign 'F1+' to the class A1 notes; 'AAA' to the A2 through A4 notes; 'AA+' to the class B notes; 'A+' to the class C notes and 'A-' to the class D notes.
