The credit cycle is getting pretty long in the tooth, but CVC Credit Partners, a private equity firm based in Chicago, is hoping that there’s still plenty of appetite for subprime auto loans.
Honor Finance, an auto finance company backed by CVC, is making its debut in the securitization market this week. The company was formed in 2001 by chief executive Jim Collins and chief operating officer Rob DiMeo. It and focuses lower quality subprime obligors with an average FICO score typically ranging between 475 and 650, according to Kroll Bond Rating Agency.
The transaction, Honor Automobile Trust Securitization 2016-1 will issue three tranches of notes totaling $100 million: Kroll has assigned an A rating to the $76.48 million senior tranche, which benefits form 33.93% credit enhancement.
The notes are backed by approximately $112.36 million of loans with a weighted average original term of 46 months. However, the pool has an average seasoning of approximately 11 months, making the weighted average remaining term 36 months. The loans have a weighted average custom score of 564 and the weighted average coupon is 25.97%.
The offering comes as late payments on auto loans have been creeping higher. Data released last week by the New York Fed show the 90-day delinquency rate for subprime auto loans was 2% in the third quarter, versus 1.9% a year earlier and 1.4% in the third quarter of 2012.
The company has had steady growth with originations increasing by 48% from 2012 ($54 million) to 2015 ($114 million).
The transaction includes Wells Fargo as a backup servicer. Wells Fargo will perform an initial mapping to their servicing system of all borrower and loan information data within 90 days after deal closing. They will also receive monthly borrower and loan information, confirm that such data is readable by their systems and confirm certain data from the monthly servicer reports. In the event of a servicer termination event, Wells Fargo would become the successor servicer. KBRA views the inclusion of Wells Fargo as a “hot” backup servicer as a credit positive.
KBRA’s expected base case cumulative net loss expectation for this transaction is 19.90%-21.90%.