DriveTime Automotive Group’s expansion into near-prime auto loans in this year is having a major impact on the Dallas-based lender’s third auto-loan securitization of the year.
DriveTime Auto Owner Trust Platform (DTAOT) 2018-3 is backed by $550 million of internally originated auto loans with a higher weighted average FICO, a lower average interest rate, a lower loan-to-value ratio and an increase in loans to borrowers in the company’s higher credit tier programs than the sponsor's previous deals.
As a result, expected loss levels have declined from prior DTAOT transactions, and senior-note credit enhancement requirements on DriveTime’s collateral have dropped significantly: down to 61.2% from the 65.5% in DTAOT 2018-2 in June.
Five classes of notes will be issued in the transaction, including a $221.65 million Class A notes due February 2022 with preliminary triple-A ratings from S&P Global Ratings and Kroll Bond Rating Agency. Also on offer are a double-A rated $51.7 million Class B notes tranche due September 2022, a single-A rated $59.95 million Class C tranche due July 2024, a Class D tranche of six-year notes totaling $70.95 million with a triple-B rating, and a double-B tranche sized at $45.1 million.
The notes’ coupons are to be determined when the transaction closes. Citigroup is the lead underwriter.
The company has issued 63 securitizations amounting to $11.9 billion since 1996, and has 14 term ABS portfolios outstanding with a balance of $2.9 billion.
While DriveTime’s traditional customer base were deep subprime borrowers with FICOs between 450 and 550, the company launched into the near-prime space this year by selling lower-mileage, newer vehicles to higher credit-scoring borrowers through more competitive rates. The initiative was aided by a $750 million, three-year agreement reached with Ally Financial in January to purchase retail contracts originated through affiliated DriveTime Auto Sales showrooms.
Kurt Wood, the former chief financial officer for DriveTime, stated in a press release earlier this year that the Ally relationship “enables us to grow originations diversify our retail and finance platforms and enter into a new consumer segment.”
S&P notes in its presale report that the agreement allowed Ally to cherry pick DriveTime’s stronger loan originations to add to its managed portfolio (it was unclear from recent presale reports whether Ally included any DriveTime loans its own prime-loan securitizations).
But the ratings agency noted that this may not always be the case. DriveTime “indicated there is a specific origination target under the forward-flow arrangement that will not be exceeded,” the report said. “This may reduce the likelihood of the better-quality originated loans being sold to the flow partner and not into the DTAOT securitizations.”
Indeed, the improved credit quality is apparent in DTAOT 2018-3. According to Kroll, DriveTime has significantly boosted the volume of loans to borrowers with FICOs over 600 from the previous transaction: 15.63% of loans were issued to borrowers in that range, versus 10.11% in DTAOT 2018-2. That provided cushion for the inclusion of more borrowers with no FICO scores (19.15% of the pool) compared to last June’s transaction (13.87%).
The 2018-3 pool’s weighted average FICO of 542 and LTV ratio of 154.71% remains firmly in deep subprime territory, however.
Kroll expects losses over the life of the deal to be in the range of 29.23% to 31.23%, down from the 32.45%-34.58% range for the last DriveTime deal it rated (DTAOT 2017-4).
S&P’s net loss range is 28.5%-29.5%, which is 50 basis points below loss ranges estimated for DriveTime’s earlier transactions this year.
