Citizens Auto Receivables Trust is returning to the capital markets to raise $779.2 million from a pool of retail auto loans that Citizens Bank originated. The deal is the program's second offering for the year and the fourth overall from Citizens' auto loan pool.
Despite Citizens' limited experience securitizing auto loans, Moody's Investors Service believes several key credit enhancements ought to make the notes attractive to investors. The bank is a top auto lender, with a managed portfolio of $7.1 million through December 2023, Moody's analysts said, and has a strong servicing track record.
As of December 31, 2023, according to Moody's, Citizens' managed pool had total delinquencies representing just 2.30%.
The 76,814 underlying loans in the current deal—which finance mostly used cars (59%)—have a total securitized portfolio amounting to $1.6 billion, with an average loan amount of $21,196, ratings analysts said. On average, they also have an average FICO score of 759, an average percentage rate of 6.60% and a loan-to-value ratio of 103%. The loans have an original term of 75 months.
The deal will issue notes through five tranches of class A notes, all of which are rated Aaa. S&P Global Ratings also assigns AAA ratings to the notes, Asset Securitization Report's deal database.
Most of the notes are benchmarked to the three-month Interpolated yield curve, according to ASR. Most notes are meant to price with spreads of 55 basis points over the 3M, Interpolated yield curve. Spreads on the A2A notes could repay investors 83 basis points over the one-month.
Credit enhancements include an overcollateralization piece amounting $29.2 million, which also represents 3.75% of the pool balance, initially, according to Moody's analysts.
The capital structure also benefits from a 0.25% non-declining reserve fund and excess spread. These enhancements give the capital structure total hard credit enhancement of 4.00% at closing, Moody's said.
Despite those benefits, the rating agency noted a few credit challenges. In June 2023, for instance, Citizens Financial Group announced that it would no longer originate indirect auto loans, suggesting that the existing auto lending program is no longer a strategic priority for Citizens Bank.
