A new research product from Credit Suisse First Boston, focusing on non-prime auto loan ABS issuers, was unveiled last week. The inaugural Auto ABS Issuer Profile, offering a peek at what the team plans to publish multiple times throughout the year, takes a look at WFS Financial.
Researchers plan similar on-site visits with several other leading issuers in the coming months, followed by similar reports throughout 2004.
Spearheaded by Christina Lai, a vice president in the CSFB research strategy group, the issuer profile breaks down an issuer's management team and history in the securitization markets, as well as four key aspects of its operations - dealership originations, loan underwriting standards, servicing and the issuer's general funding mix in relation to its reliance on ABS.
The idea is to differentiate between the various non-prime lenders, according to research head Neil McPherson. Within the non-prime auto world, CSFB hopes to issue similar reports on AmeriCredit Corp. and Capital One Financial, for example, based on similar on-site visits.
Lai runs down WFS' revamped auto dealer base, reducing its franchise relationships to 8,000 from roughly 13,000 over the past five years. CSFB cites three main reasons for this decline, two of which it views as positive developments. Retail dealer consolidation is a neutral factor.
WFS' completion of its 1998 corporate restructuring and the elimination of underperforming dealerships are positives.
As expected for the Irvine, Calif.-based finance company, the highest concentration of its loans, nearly 40%, are made in California. In the future, CSFB says this concentration is something that WFS would like to reduce by boosting its presence in other states, namely Washington, Arizona, Colorado, Texas and Oregon, in which 3% to 6% of its loans originate.
WFS's prime to non-prime ratio is roughly 80/20, CSFB reports, with a 660 average FICO. The majority of its loans are five and six years in tenor. Nearly 55% of the loans in its most recent 2003-4 transaction were originated with a 71-month original term.
WFS' servicing platform has roughly 800 employees, each with 90 to 110 delinquent accounts. CSFB notes that employees have been with the company an average of seven years and cites what it calls "relatively low turnover." The company's program of internal transfers is seen as offering value in that many employees have experience in collections, underwriting and servicing departments.
Going forward, CSFB reports that WFS will continue to securitize regularly, but will offer more senior/subordinated transactions than it has historically. It will, however, maintain its relationship with guarantor Financial Security Assurance.
Finally, CSFB adds that a diversified funding base also benefits WFS, as it regularly accesses the unsecured debt, and bank deposits, and does not rely on conduit financing from its investment banks.
In sum, CSFB sees WFS ABS as having relative value for investors, particularly in its subordinated classes, versus its captive lender counterparts. CSFB particularly recommends that first-time subprime ABS investors make WFS "the name to start with."