Two new auto loan pools being issued this week by Foursight Capital and DriveTime Auto Group provide evidence of subprime auto lending’s ongoing market momentum.
But the pair of deals also underscores the growing diversity of experience in nonprime auto loan securitizations.
DriveTime, an ABS issuer with 20 years in packaging loan pools, is packaging its third DT Auto Owner Trust transaction of 2016 with plans to issue $435 million in notes backed by $589.8 million in new and used auto loans.
Foursight, a unit of auto finance company investor Leucadia National Corp., meanwhile is selling a $164.4 million portfolio of notes supported by $228.3 million in new and used loans in only its third ABS transaction since forming in 2012.
DriveTime, which has issued 17 rated deals since 2010, has received a preliminary ‘AAA’ rating from Standard & Poor’s and Kroll Bond Rating Agency on the $218.24 million tranche of Class ‘A’ notes. This despite concerns over its increasing plunge into “deep subprime” loans for older used cars (in excess of 80,000 miles) to customers with average 540 FICO scores as well as rising loss levels and a past consent order agreement with the Consumer Financial Protection Bureau.
The DriveTime transaction is similar to the structure of two prior 2016 transactions through the DT Auto Owner Trust. The Class B notes are sized at $61.93 million, with an ‘AA’ rating from S&P and Kroll; the Class C notes are rated ‘A’ by both agencies and total $66.36 million. A subordinate Class D notes structure, rated 'BBB', totals $88.47 million, and is due 2023.
The notes benefit from available credit support of 66.1% (Class A), 60.6% (Class B), 52% (Class C) and 43.3% (Class D). Citigroup is the underwriter.
The underlying loans and borrower qualities changed slightly from DriveTime’s previous transaction: more loans in the 61-66 month range were originated, and the weighted average loan-to-value ratio was up to 171.32% from 171.23%.
DriveTime’s managed portfolio as of March 31 stood at $3.5 billion, compared to $2.7 billion the year prior.
Foursight Capital Automobile Receivables Trust 2016-1 was only able to garner a single-‘A’ S&P structured finance rating on the $153.9 million, four-year Class A notes at the top of its capital stack (similar to DriveTime’s Class C notes rating).
Foresight is serving customers in the higher spectrum of subprime borrowers (78% of its contracts are with FICO scores of between 601 and 700) for its new and used car loans, and has expected cumulative net losses of 7.5%-8% in the portfolio. (DriveTime’s expected net loss range of its notes range from 29.5%-30.5%, according to S&P).
But Salt Lake City, Utah-based Foursight is also a relative newcomer to the space, with only three securitizations (two unrated by S&P) in its background since being formed in 2012 by former managers of defunct auto financier Franklin Capital. It does not have a track record of portfolio performance during an economic downturn, with the company having only 3.5 years of origination data.
Foursight is also conducting rapid growth and geographic expansion, according to S&P, building its $339.4 million portfolio of loans more than 75% in the past year. While that is “typical for relatively new auto finance companies, it sometimes comes at the expense of credit quality,” the report states.
Nearly all of Foursight’s loans are long-term loans that are originated at 72 months or longer, another concern for longtime portfolio credit quality. The hard credit enhancement of the Class ‘A’ notes is 18.35%; a subordinate level of $10.5 million Class B notes (rated ‘A-’ by S&P) is 9.3%.
JPMorgan is the underwriter for Foursight’s transaction.