Weeks after deciding to end its car dealer financing program, Citizen Financial Group is planning its first securitization of prime-quality auto retail installment loans that its subsidiary, Citizens Bank, originated.
Citizens Capital Markets, J.P. Morgan Securities and Morgan Stanley & Co., are lead underwriters on the deal, Citizens Auto Receivables Trust 2023-1, which will offer $779.2 million in notes to investors. The trust will issue notes through five classes of notes and one unrated $29.2 million, overcollateralization strip, according to ratings analysts at Moody's Investors Service.
All of the notes will be fixed, except for the A-2-B class, which will be priced over the Secured Overnight Financing Rate.
Although the deal debuts at a time of so much change at both the issuer and the corporate level, Moody's cites the experience of Citizens' management team and its high quality of the collateral pool as key credit strengths. The management team has a national footprint and has a lot of experience originating and servicing auto loans. Another advantage is that the credit enhancement will build as the pool amortizes, the rating agency said.
Analysts at S&P Global Markets credit the transaction for 8.10% in available credit support for the class A notes, based on its stressed cash flow scenarios.
Moody's says it expects a cumulative net loss of 1.00% on CITZN 2023-1, with losses of 6.50% on the 'Aaa' stress level.
Ratings analysts don't cite a lot of credit concerns about the deal, other than the platform's lack of prior securitization experience, and the company's decision to stop originating indirect auto loans. Even while citing these drawbacks, analysts note that the bank has developed a substantial servicing and reporting technical infrastructure to support its prime auto ABS transaction.
Also, although ending the lending program suggests that it is no longer a strategic priority, it could be a credit negative down the line. Moody's notes several mitigating factors, there, however, including that the auto loans are a small portion of its overall consumer receivables portfolio. The auto receivables are being serviced on the same platform as other consumer receivables, and the rating agency notes that Citizens will continue to have an economic 'skin in the game' in existing auto loan receivables.
Fitch says it will assign 'P-1' ratings to the A-1 notes; and 'Aaa' to the A-2 through A-4 notes. Similarly, S&P will assign 'A-1+' notes to the A-1 notes and 'AAA' to the A-2 through A-4 notes.
The notes have legal final maturities of June 17, 2024 through Oct. 15, 2030.
