A pool of subprime auto loan receivables will secure the $622.8 million in asset-backed securities from the Exeter Automobile Receivables Trust, 2023-2, which attempts to offset increasing delinquency and default rates with certain credit protections like enlisting Citibank as a backup servicer.
Delinquencies and defaults have been increasing in both the managed portfolio and securitized assets, according to Fitch Ratings, which intends to rate the notes issued from the trust. As of Dec. 31, 2022, auto loans in the 61-day plus grouping had a delinquency rate of 8.92%, representing a year-over-year increase of 6.64%, and it has only escalated since then, Fitch said.
Both delinquencies and losses had increased by March 31 with delinquencies reaching 15.09%, up from 12.04% on a year-over-year basis, the rating agency said. Net chargeoffs were 10.50%, an increase from 6.05%, Fitch said.
While losses are increasing in both the managed portfolio and the securitization, the deal, known as EART 2023-2, has a number of forms of credit enhancements built into the structure, such as excess spread of 11.70% per annum.
Initial hard credit enhancement went in different directions on the different classes of notes. On the class A notes, for instance, initial hard credit enhancement was 62.60%, up from 60.05% on the EART 2023-1, according to S&P Global Ratings. The same wasn't true for classes B, C, D and E notes, however, where total initial hard credit enhancement had decreased to 46.55%, 33.15%, 19.05% and 9.80%, down from 47.65%, 34.75%, 21.60% and 10.65%, the rating agency said.
Some 33,361 loans are in the securitization pool, which have a $20,405 average current principal balance and a weighted average (WA) nonzero FICO score of 571, according to Fitch.
Deutsche Bank Securities is the lead underwriter on EART 2023-2, according to Fitch, and the trust will issue notes through seven classes of notes.
S&P expects to assign ratings of 'A-1+' on the A-1 notes; 'AAA' on the A-2 and A-3 notes; 'AA' on the class B notes; 'A' on the class C notes; and 'BBB' and 'BB' on classes D and E notes. As for Fitch, the rating agency intends to assign 'F1+' on the class A-1 notes. Following that, the ratings follow a similar pattern to that of S&P. the A-2 and A-3 notes will be rated 'AAA'; classes B and C will be rated 'AA' and 'A' and classes D and E will receive 'BBB' and 'BB' ratings. The notes have legal final maturities ranging from May 15, 2024 through Nov. 15, 2030, the rating agency said.
