Driveway Finance Corp. is preparing to bring a $600 million securitization of prime-quality retail installment loans on automobiles to investors, coming to market through the LAD Auto Receivables Trust 2025-1.
The underlying loans were originated by Driveway Finance, a subsidiary of Lithia Financial Corp., which will sell the loans to the trust and service the underlying assets, according to rating agencies and Asset Securitization Report's deal database. Known as LADAR 2025-1, the deal will issue the notes through seven tranches of class A, B, C and D notes, according to ratings analysts.
J.P. Morgan Securities and BofA Securities are lead underwriters, according to Moody's, while ASR's deal database notes that J.P. Morgan Securities is the deal's manager.
Driveway Finance's integrated business model with its parent company, Lithia Financial is a credit strength, because the latter is one of the largest auto retailers in the U.S. Systems Technologies is considered a strong backup servicer and adds to the credit strengths of the deal.
All the class A notes benefit from total initial hard credit enhancement totaling 21.0% of the pool balance, according to Moody's. Classes B, C and D benefit from 17.0%, 11.5% and 6.5%, respectively, the rating agency said. Credit enhancements include subordination, excess spread and overcollateralization.
There is also a reserve fund representing 0.50% of the pool balance, according to Moody's.
Despite all the credit strengths, LADAR 2025-1 has limited securitization experience, which makes forecasting losses more difficult, Moody's said. Lastly, while used car prices have stabilized in recent months after falling from historical highs, they could fall further if demand subsides due to a slowdown in economic activity.
The pool is composed of 21,948 contracts, which have a weighted average (WA) original term of 72 months. Borrowers have a FICO score of 735 on a weighted average (WA) basis, and are mostly buying used cars, which make up 72.78% of the pool.
Moody's assigns P1 to the A1 certificates; Aaa to the A2 through A4 tranches; Aa2 to the class B notes; and A2 to the class C notes.
S&P Global Ratings assigns A1+ to the class A1 notes; AAA to the A2 through A4 notes; AA to the class B notes; A to the class C notes; and BBB to the class D notes.
