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Captive biz takes back seat in Ally's new $539.8M non-prime ABS

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Ally Financial’s diminished profile as a captive-finance lender has faded further in its first non-prime auto loan securitization in more than a year.

The $539.8 million Capital Auto Receivables Asset Trust (CARAT) 2017-1 transaction of new (60% of the pool) and used (40%) car loans is highlighted by a two-thirds reduction in subvented loans in the collateral pool from the former GMAC subsidiary of General Motors.

Only 3.3% of the 34,524 contracts are low-interest APR loans subsidized by manufacturers to incentivize well-qualified borrowers’ purchases and leases – a drop from the 9.9% level in its prior CARAT platform transaction in July 2016.

It’s also just a fraction of the 25-30% level of subvented loans previously carried in Ally’s non-prime securitizations before GM removed the Detroit lender from its incentive-loan channel in November 2015. Subvented loans traditionally bear lesser risk than non-subvented loans in auto loan-backed ABS.

Ally, however, remains a subvented finance program partner for Chrysler (which accounted for 30% of its finance business in the second quarter) and is a preferred lender for both Mitsubishi Motors Credit of America and U.S. dealers for Aston Martin vehicles.

CARAT 2017-1 is Ally’s 15th transaction on the platform featuring a majority of loans to below-prime borrowers. Ally securitized most of its prime loans through the Ally Auto Receivables Trust, which has issued four loan deals this year totaling $4.23 billion.

The new deal’s capital stack includes a $111 million money-market tranche with preliminary P-1/A-1+ ratings from Moody’s Investors Service and S&P Global Ratings, plus three triple-A rated Class A tranches totaling $353.2 million. Those include $163.37 million in two-year bonds, a $133.74 million four-year notes series and a $56.13 million senior-note tranche due March 2022.

The Class A notes have 14.5% credit enhancement unchanged from its previous transaction, consisting of subordination, an initial 2.5% overcollaterization of $13.5 million and a 0.5% non-declining reserve fund.

The contracts in the pool have a weighted average FICO of 633, a loan-to-value ratio of 103% (lower than previous deals) and an average APR of 10.67%. The percentage of loans that have original terms over five years was slightly reduced to 77.7% from 79.7%.

The loans average 13 months of seasoning, much lower than the CARAT deals before 2016 when loans were baked for about two years because of the revolving structures that have since beeen dropped in Ally’s non-prime asset-backeds.

Because of declining performance in Ally’s 2016 CARAT deals and industry-wide problems in residual values of used cars, both Moody’s and S&P have elevated the cumulative net loss projections for CARAT 2017-3. Moody’s has a 4% cumulative net loss expectation; S&P has pushed the CNL range for the deal to 3.75%-3.95%, compared to 3.6%-3.8% for CARAT 2016-2.

Both agencies have recent revised net loss expectations for 2015 and 2016 transactions due to rising loss levels in those vintage loans that has driven up losses in Ally’s managed portfolio to 2.35% from 1.74% a year ago (still far below historical peaks). Thirty-day delinquencies are up to 5.29% from 5.05%, according to S&P.

Barclays, JPMorgan and RBC Capital Markets are the lead underwriters.

Ally (NYSE: ALLY) is scheduled to report earnings next week.

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Auto ABS Subprime lending Ally Financial