DriveTime Car Sales is preparing to sell $480 million in asset-backed securities to investors through the DT Auto Owner Trust 2023-3 transaction, where the collateral has a lower interest rate, a higher loan balance, and a higher non-zero FICO score, all on a weighted average (WA) basis.
The deal's main strengths are in the trust's note repayment structure, DriveTime's strong ownership and experienced management team, the sponsoring company's integrated business model and its diversified sources of funding, according to ratings analysts from Kroll Bond Rating Agency.
Known as DTAOT 2023-3, the transaction is expected to close on July 18, according to the Asset Securitization Report's deal database. It has initial hard credit enhancement that ranges from 55.70% for the class A notes to 15.40% for the class E notes, according to KBRA. Overcollateralization, subordination of junior notes, a cash reserve account and excess spread provide credit enhancement to the notes, according to KBRA.
DriveTime has been in business for more than 30 years. The company's integrated business model allows it to finance all of the loans that it originates, which are extended to subprime borrowers, primarily, KBRA said. A centralized pricing model determines vehicle pricing, and the company does not negotiate this with customers, according to KBRA, which seems to help stabilize prices.
As for its sources of funding, DriveTime has $1.1 billion in warehouse facilities from Wells Fargo, Citigroup, Deutsche Bank and Fifth Third, according to KBRA. This includes facilities that were in place as of March 30, 2023, and a recently boosted warehouse commitment with Fifth Third.
In another potential credit positive, the underlying loans in the collateral pool are geographically diverse, which should help mitigate the risks of delinquencies or defaults in the underlying loans should natural disaster, regional economic recessions or more national economic conditions compromise borrowers' ability to repay their loans. Texas accounts for 15.0% of the loans, followed by Florida and Georgia, as of the June 30, cutoff date, KBRA said.
S&P Global Ratings analysts say that among the 23,735 loans, the average balance is $23,523, and that on a weighted average basis the loans have an APR of 21.87%, a loan-to-value ratio of 139%, and an original term of 70.52 months.
KBRA expects to assign ratings of 'AAA' to the class A notes; 'AA' to the class B notes; 'A' to the class C notes; 'BBB' to the class D notes and 'BB' to the class E notes. S&P's ratings are the same.
