DriveTime Automotive Group plans to issue $340 million of bonds backed by subprime auto loan securities, according to Kroll Bond Rating Agency.

The deal dubbed DT Auto Owner Trust 2016-1, will offer four classes of notes that are secured by $461.02 million of loans: $168.2 million of ‘AAA’ rated, class A notes with a legal final maturity date of Sept. 16, 2019; $47.2 million of ‘AA’ rated class B notes that are due May 15, 2020; $55.3 million of class C notes that are due Oct. 15, 2021; and $69.16 million of ‘BBB’ rated class D securities that are due Dec. 15, 2022.

The senior notes benefit from 65% credit enhancement; class B notes benefit from 54.75% credit enhancement; the class C notes benefit from 42.75% credit enhancement; and  the class D notes benefit from 27.75% credit enhancement.

The collateral is comprised of subprime auto loans used to purchase used cars sold by DriveTime's network of dealers. The sponsor uses an internal credit scoring model to determine a borrower’s credit grade; borrowers typically have an average FICO score ranging between 475 and 550.

Approximately 21.47% of the loans in DTAOT 2016-1 have no FICO score. KBRA’s loss expectation for the deal is 30.00% to 32.00%; in line with previous DriveTIme securitizations that it rates.

Securitization is the primary way that DriveTime funds its lending. As of Sept. 30, 2015, it had eight term securitizations  outstanding with an aggregate balance of $1.2 billion, according to KBRA. The latest securitization, DTAOT 2015-3, was completed on Oct. 14, 2015 and has a current outstanding balance of $354 million.

In addition to its term securitizations, DriveTime has a $675 million in asset-backed warehouse facilities with four different lenders. In May 2015, it a $75 million private warehouse facility that was rated by KBRA. It also renewed a Wells Fargo warehouse facility, which increased by $50 million, to $200 million and extended the expiration date to July 2017.

DriveTime also renewed a $150 million Citi warehouse facility for one year, to May 2016, and increased the size to $200 million. It also amended its warehouse with Deutsche Bank to increase the size by $50 million to $200 million.

The sponsor has another $50 million facility provided by Santander Consumer USA Inc. and a $160 million facility provided by Guggenheim each of which are secured by the residual interests in the DriveTime’s warehouse facilities, outstanding securitizations and unpledged finance receivables.

DriveTime also has a $220 million revolving inventory facility provided by Ally Bank as well as a $100 million inventory facility for vehicles that have been leased. In June 2014, the company redeemed its $250 million 12.625% senior secured notes due 2017 and issued $400 million 8.00% senior secured notes due 2021.

“The degree to which DriveTime is leveraged and restrictions imposed by their debt facility covenants could impact their ability to close future financings,” stated KBRA analysts in the presale report.

However the rating agency views DriveTime’s experience managing through a major financial crisis and its current ability to secure liquidity from a variety of capital market sources as a credit positive. The sponsor has been in business for over 23 years.

DriveTime is going to need the capital to fund ongoing ventures it has been developing in recent years.  For example, the company now offers the option to lease vehicles.  Although leases aren’t yet part of DriveTime’s securitization pools, the volume of this asset class is steadily growing. According to KBRA leases totaled $203 million as of Sept. 30, 2015, up from $136 million as of Dec. 31, 2014.

The company also launched an online vehicle sales sit called Carvana in 2013, which was spun-off as an unrestricted subsidiary on July 27, 2015,

DriveTime also plans to add another 10 dealerships in 2016 to the company 135 network of dealerships. This is on top of the 13 new dealerships it added in 2014. 


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