Exeter maintains AAA on subprime auto ABS despite dip in collateral quality
Exeter Finance maintained a newly minted triple-A securitization rating for its second subprime auto securitization of the year, despite a slight decline in the collateral pool quality.
The $500 million transaction comes three months after the Blackstone Group-owned lender achieved its first AAA senior-note rating from both S&P Global Ratings and Moody’s Investors Service for its asset-backed offering.
The triple-A ratings stuck even though both Moody’s and S&P raised expected loss levels due to the downturn in credit quality, including higher loan-to-value ratios and fewer new-car loans among the receivables pool.
The capital stack for Exeter Automobile Receivables Trust (EART) 2018-2 includes a $254.1 million tranche of senior fixed-rate Class A notes due July 2021. Exeter provided slightly higher levels of initial hard credit enhancement of 58.5%, compared with 57% for its first deal of the year (EART 2018-1). The CE includes an overcollateralization of 5.3% that will build to a target of 14.25% of the pool balance.
There are also $77 million of four-year Class B notes rated AA; $82.8 million of A-rated Class C notes are due March 2023; $92.9 million of Class D notes rated BBB the March 2024 Class E notes totaling $43.3 million, due May 2025.
The notes are backed by $580.8 million across 36,686 loans with an average principal balance of $15,831. The loans carry an average APR of 21.73% with original terms of 69 months – a slight decline from 70 months in each of the past seven EART transactions.
In S&P’s opinion, Exeter’s 2018-2 collateral weakened slightly from the lender’s first securitization this year with an increase in LTV to 111.5% from 110.6%, and the decline in new-vehicle collateral to 23.7% from 26.8%. The weighted average FICO also declined to 565 from 567, with the percentage of loans to borrowers with FICOs over 600 decreased to 20.9% from 22%.
In addition, the portion of no-FICO loans increased to 8.7% from 7.3%.
Along with an estimated excess spread decrease to 14.6% from 15.7%, the factors led S&P to increase expected loss range to 20.5%-21.5% from 20%-21% from the 2018-1 series. Moody’s raised its lifetime loss forecast on the deal to 21% from 20%.
The higher-loss projections run counter to Exeter’s performance improvement in recent-vintage securitizations, however. Exeter had a 109-basis-point decline in 30-day delinquencies year over year (10.34% in 2017 vs. 11.43% in 2016) and to 19.04% overall in its $3.4 billion managed portfolio, according to S&P and Moody’s.
Net losses have been declining in Exeter transactions since 2015, as well. Losses are building at 21% clip for its EART 2016-3 series, for example, compared with 23% for its third issuance of 2015.
Exeter is also improving its corporate earnings. The company expects to report $47.1 million in 2017 revenue, compared with $31.3 million in 2016 and steep losses in 2014 and 2015.
The deal is expected to close April 25. Barclays is the deal’s structuring agent, and is underwriting the deal with Citigroup.