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Subprime auto lender's debut ABS backed by very high-mileage cars

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A pair of subprime auto lenders launched more than $340 million in asset-backed securities this week.

CIG Financial, an indirect lender since 2000, is marketing its first public securitization. The $172.5 million CIG Auto Receivables Trust 2017-1 is backed by loans originated through more than 2,100 franchised and independent vehicle dealers and serviced by the California-based company. Over 90% of the loans are originated from independent dealers.

Three tranches of notes will be issued in the transaction, including a $150.95 million tranche of Class A notes, with a preliminary A rating from DBRS and A3 rating from Moody's Investors Service. Those notes will be supported by 17.5% credit enhancement, including subordination of 12% of the initial pool balance, initial overcollateralization of 4% and a 1.5% non-declining reserve account.

The subordinate B and C notes total $21.7 million; all of the notes will benefit from an excess spread estimated to be 10.97% a year (based on the weighted average coupon of 17.98% minus the average bond coupon of 3.97%, and 3.04% for servicing and other fees).

The loans backing the notes have a balance of $179.7 million and are secured by used vehicles with very high mileage. According to DBRS, 28% of the vehicles have mileage above 100,000; the highest-mileage car financed had 197,387.

The loans average $9,338 with original terms of 54.8 months. The loans are made to subprime borrowers with a weighted average FICO score of 591 at an average loan-to-value ratio is 112.28%, in which over 93% of borrowers taking out loans with LTVs of 130% or less. The loans are seasoned an average of 13.56 months.

The company operated exclusively within California before it began a regional expansion in 2010 that now includes an 18-state footprint on the West Coast, Southwest and Southeast regions. The lender has previously issued three private-term securitizations in 2013, 2014 and 2016.

CIG is the originator and servicer of the loans; it has deployed CSC Logic as the backup servicer.

The privately owned CIG began under a predecessor company in 1985 offering personal consumer loans, but in 1990 the company began purchasing subprime auto contracts from dealers; by 2000, according to presale reports, CIG was focused almost exclusively in the auto finance sector.

According to DBRS, CIG has evolved its lending platform to cater more to independent dealers since 2011-2012 and has launched programs designed to attract buyers with higher credit scores. Its average FICO in 2009 was in the deep subprime range of 545 in 2009; that was elevated to 576 in 2010.

Over 21% of originations now are with borrowers with FICOs over 626; on the other end of the spectrum, 11.93% have no FICO score, and 10% are under 525.

In data provided to ratings agencies, CIG has reported strong recovery rates averaging 50% or higher per year since 2010, and its delinquency history has improved due to underwriting improvements and lending into higher-scoring tiers of borrowers.

DBRS established a base case loss proxy for the deal at 8%.

Meanwhile, First Investors is marketing its third-deal this year of new- and used-car loans to mid-subprime borrowers, totaling $167.4 million.

First Investors Auto Owner Trust 2017-3 will issue two tranches of notes with preliminary triple-A ratings from S&P Global Ratings and Kroll bond Rating Agency: $95 million in Class A-1 notes and $24.88 million in Class A-2 notes. The bonds benefit from 30.05% initial hard credit enhancement, slightly up from its prior deal (29.5%).

First Investors, which offers both direct and indirect loans through more than 2,200 dealers, has made a few substantial changes in its new transaction. The percentage of new vehicles has risen to 31.1% from 23.29% from its FIAOT 2017-2 transaction. The average annual percentage rate on the loans has also risen to 14.46% from 13.83%. The average seasoning decreased to 1.15 months from 2.24 months.

There was only a slightly higher percentage of longer-term loans between 61-72 months (92.32% from 92.15%). The average FICO of 586 and the weighted-average LTV of 122.41% were similar to the prior deal.

The transaction includes a prefunding feature; the notes will initially be backed by $129 million of receivables, which will grow to $167 million as $38 million more collateral is added over the following three months.

Because of recent deteriorating performance in First Investors’ securitizations, S&P has raised its expected loss range to 10.75%-11.25% from 10.25%-10.75% from the prior deal. KBRA’s expected base case loss range of 9.9%-10.4% was up slightly from 9.7%-10.2% in the last deal.

First Investors’ managed portfolio was at $1.38 billion as of Sept. 30 of this year. It increased originations to $557 million for the 12-month period ending in September, up 6% from the year prior

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Auto ABS Subprime lending S&P DBRS Kroll Bond Rating Agency CIG Financial CIG Financial Moody's