Exeter Finance Corp. is marketing $450 million of securities backed by subprime auto loan receivables via its Exeter Automobile Trust.

Exeter, which is headquartered in Irving, Texas, is majority owned by the  Blackstone Group and originates auto loans indirectly through franchised and independent dealerships. 

Standard & Poor’s has assigned preliminary ratings of ‘AA’ to $295 million of class A, senior notes due November 2019. At the subordinate level the trust will issue $61.8 million of ‘A’ rated class B notes, due March 2021; $48 million of ‘BBB’ rated class C notes, due March 2021; and $44.7 million of ‘BB’ rated class D notes, due May 2022.

Deutsche Bank is the lead manager.

Exeter’s 2015-2 transaction, its second so far this year, is structured with less overall credit support at both the senior and subordinate levels compared to its 2015-1 transaction, completed in February. The class A in the 2015-2 deal has 33% credit support compared to 34% in the 2015-1 transaction, the class B notes have 19.8% subordination compared to 20.5% and the class C notes have 9.55% compared to 9.3%.

Lower credit support isn’t the only change that increases the risk in the 2015-2 transaction; the deal is also backed by a higher percentage of loans without a FICO score, 3.77% vs 3.02%. Also on the rise is the percentage of loans financing used cars, to 83.1% of the pool from 80.6% of the pool. The weighted average payment borrowers have made on obligation also decreased, to 2 Months from 3.6 months.

Exter has also increased the  portion of longer-term loans (61 to 72 months) to 90% of the pool from 89.12% of the pool. These loans are the issuers better performing loans relative to 60-month and shorter loans, according to the S&P presale report.

However loans in the latest deal have a lower weighted average loan to value ration of 112.6% vs 113.26%, and the weighted average FICO of the pool increase slightly to 569 from 567. The percentage of loans with a FICO of less than 540 ( considered deep subprime) decreased to 25.83% of the pool from 27.3%.

S&P stated in the presale that the issuer has experienced rapid growth in the last two year at the cost of performance.

As of the first quarter of 2015, the managed portfolio increased by approximately 41% to $3.13 billion from $2.22 billion over the same period in 2014. As of year-end Dec. 31, 2014, the managed portfolio had increased by approximately 54% to $2.98 billion from $1.93 billion at the end of 2013.  “Although the growth is slower than in the past, we have been concerned that its growth may have come at the expense of credit quality and adequate infrastructure,” stated analysts in the presale report.

Exeter reported a net losses in the first quarterof  2015, after reporting a loss for full-year 2014. It attributes this to growing loan-loss reserves due to slightly higher loss expectations than in the past, growth in the portfolio, and one-time costs associated with closing branch offices.

However, Blackstone continues to fund the company: it provided $50 million in additional capital to the company, bringing its total capital contribution in Exeter to approximately $440 million as of Dec. 31, 2014.  

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