Two lenders, DriveTime Car Sales and Mechancis Bank, launched a combined $854 million of auto loan-backed securities Friday.
Mechanic’s $419.8 million prime auto ABS is the 14th deal from the California Republic Bancorp shelf and the first since the Irvine, Calif. bank was acquired Mechanics in October 2016.
Prior to the $330 million merger, California Republic had discussed expandingits indirect lending platform nationwide. The deal gives it the capital and the liquidity to do so. The combined entity has a managed portfolio of loans topping $3.08 billion.
While CRB’s retail branches have been rebranded as Mechanics, its indirect auto lending arm is still tagged as CRB Auto. Mechanics succeed’s CRB as servicer and administrator of the outstanding loans. As of Dec. 31, the combined auto division had ties to about 2,300 dealers, 70% of them franchised and 30% independent.
California Republic Auto Receivables Trust 2017-1 will issue sixe tranches of notes, including $304 million in three tranches of provisionally rated triple-A senior notes and a $69.3 million, one-year money market tranche (Class A-1) that has an ‘R-1 (high)’ provisional rating from DBRS. All four tranches have 11.6% credit enhancement.
There are also two subordinate tranches: the Class B notes are rated ‘A’ and the Class C bonds are rated ‘BBB’.
The notes are backed by 20,747 loans averaging $20,707 to borrowers with prime and near-prime credit profiles: 56.04% of the obligations are from obligors with FICO scores of 680 or better, and 26.9% have scores between 640 and 679. The average FICO score was 700, an improvement from the previous average of 692 in California Republic’s previous securitization in May 2016 (CRART 2016-2).
Most (75.36%) are secured by used vehicles.
The higher credit scores resulted in a lower overall APR (7.23%) compared to 2016-2, but it above the 6.82% average APR for California Republic’s first 2016 deal. The latest transaction also featured a lower weighted average payment-to-income ratio (7.15%) than the May transaction (7.58%).
The weighted average loan-to-value ratio of the loans at origination was 112.84%, with the LTVs of 71.83% of receivables ranging from 100-139%. The largest concentration of loans was in California (42.91%).
The average term was 68 months, which is slightly lower than the 69-month average of the four previous CRART transactions.
DBRS expects cumulative net losses on the portfolio to be 2.95%; that’s 0.2 percentage points higher than the previous transaction, reflecting tougher conditions in Texas, which is CRB’s second-largest market.
DriveTime Boosts Credit Enhancement
DriveTime is also in the market with its first deep subprime transaction of the year, the $435.54 million DT Auto Owner Trust 2017-1.
Standard & Poor’s has assigned preliminary ‘AAA’ ratings to the $187.82 million tranche of three-year senior Class A notes. There are also four classes of subordinate notes include a $55.8 million Class B series (rated AA); $76.22 million in Class C notes (A); $68.05 million in Class D (BBB); and $47.65 million for Class E (BB).
The ratings align with recent DriveTime ABS transactions, although the sponsor had to increase its initial hard credit enhancement to 67% from 65.75%in its prior deal, DTAOT 2016-4.
The credit metrics have deteriorated slightly. DriveTime has increased the percentage of loans issued to borrowers in its top three credit grades to 67.8%, compared to DTAOT 2016-4’s 66.3% average; however, the weighted average FICO of the deal declined to 541 from 545.
The average LTV ratio (including ancillary products) is 170.9%, up slightly from 170.6%.
Also, the percentage of long-term loans (67-72 months) grew to 50.32%, from 47.88%. Longer-term loans amortize more slowly, increasing the risk that borrowers will be “underwater” on their loans should they default.
S&P expects losses to be in the range of 29.5%-30.5%.
The transaction is DriveTime’s 19thsecuritization rated by S&P since 2010.