A reference pool of fixed rate auto installment contracts extended to prime quality borrowers will secure $2 billion in credit linked notes to be issued from the Chase Auto Credit Linked Notes, series 2025-1 deal.
The transaction transfers credit risk to noteholders through a credit default swap structure with eight tranches of classes A, B, C, D, E, F, G and R notes, according to Moody's Ratings. All notes have a legal maturity of Feb. 25, 2033, although the coupon had not been disclosed.
Note tranches have levels of subordination including 12.50% on the class A notes and 4.55%, 3.30% and 2.75% on the classes B, C and D notes. The rest of the structure has subordination levels ranging from 1.90% on the class E notes to 0.75% on the G tranche.
One aspect of the deal, considered a strength, is the underlying credit quality of the borrowers. They have a weighted average (WA) FICO score of 790, with a minimum of 680. The loans had a WA original term of 69 months and a WA loan-to-value ratio of 92.2%. Altogether, that allowed Moody's to set its loss expectation at 0.70%, which it said was among the lowest of prime issue auto ABS transactions that it rates.
Chase Auto Credit will repay investors through a pro rata structure. Scheduled and unscheduled principal payments will be distributed to noteholders based on the percentages of the senior and subordinate notes. Moody's said. That structure is considered a credit challenge, the rating agency said. One atypical feature, for an auto ABS deal, is that principal on the notes will be reduced in a reverse sequential order based on realized losses. Moody's considers this structure a potential credit challenge.
If the reference pool balance reaches 10% of its initial balance, then
Moody's assigned Aa2, A3, Baa3, Ba3 and B3 to classes B, C, D, E and F, respectively.
