Cascade Funding has launched its first auto loan asset-backed security (ABS), stemming from its multi-billion-dollar acquisition of auto loans from KeyBank, that pools loans to both new and used cars buyers with prime credit scores in the US.
The sponsor’s CFMT 2021-AL1 Trust deal is a massive $3.1 billion inaugural securitization, of which Moody’s Investors Service has rated a $373 million portion of the pool that was retained by Cascade, according to the rating agency’s Nov. 16 pre-sale report. KeyBank, meanwhile, purchased the remaining unrated notes.
Moody’s issued provisional ratings of ‘Aa3’ for a $322.44 million tranche providing 2.66% initial hard credit enhancement (CE); ‘Baa3’ on $27.36-million tranche providing 1.75 % CE; and ‘Ba2’ on a $23.32-million piece providing 1% CE.
According to the pre-sale report, Cascade bought roughly $3.2 billion indirect auto loans from KeyBank in September. At the same time, CFMT 2021-AL1 issued notes backed by the acquired portfolio. KeyBank bought $2.8 billion senior Class A unrated notes and Cascade kept the Class B notes, the report said.
In the deal, both “Class B and C notes supplement are being amended and restated, and the original Class B Notes will be reissued as the Class B Notes while the original Class C Notes will be divided into three classes,” the pre-sale report said.
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Auto loan delinquencies and defaults had performed well thanks to federal intervention. Analysts expect them to return to historic levels, and then stabilize.
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The deal is fortified with collateralization, subordination and reserve accounts throughout the capital structure to get most of the notes to top ratings.
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Cascade Funding, LP is the deal’s sponsor. KeyBank, with more than 60 years of experience originating and servicing consumer loans and mortgages, is listed as the originator and servicer for the transaction. Barclays Capital is slated as the lead underwriter .
The trust’s agent, Cascade Funding GP, is a subsidiary of New York’s Waterfall Asset Management, a 16-year-old company that focuses on private equity investments, ABS and loans. Waterfall has approximately $9.8 billion in assets under management, according to its website. Its founders, Jack Ross and Tom Capasse are alumni of Merrill Lynch’s ABS group.
Since 2007, Waterfall and its affiliates have contributed or have issued collateral to 103 debt securitizations, typically using the securitization as a financing tool and retaining the interest, the report said.
Moody’s noted the favorable credit quality of the collateral pool, with its weighted average FICO score of 764. The pool has a high seasoning of 25 months, the agency said. The credit loss expectation is 1%.
Fifty-nine percent of the vehicles, which include sport-utility vehicles, vans, crossovers, trucks and other motor vehicles, are used and 41% are new. The average annual percentage rate (APR) is 5.38%. Almost half, 48.5%, of the loans are in Ohio, New York and Pennsylvania. The average remaining loan size is $14,845 for 209,456 contracts.
Moody’s notes one challenge as the potential decline in used car prices, which increased dramatically due to the semiconductor chip shortage and other pandemic-related reasons, since the large volume of leased vehicles released at the end of their terms could exert downward pressure.
