Exeter Finance Corp. priced a $500 million securitization of subprime auto loan receivables last week at a blended average coupon of 3.13%, according to a statement released by the company.
The private offering consisted of four tranches of notes issued by Exeter Auto Receivables Trust 2014-3. The senior notes with a weighted average life of 1.02 years were rated AAA’ by DBRS but only earned a AA’ from Standard & Poor's; the two agencies assigned identical ratings of A’, BBB’ and BB’ to the three subordinate tranches.
Citigroup and Goldman, Sachs & Co. acted as joint bookrunners on the transaction, which is expected to close Oct. 15. Barclays, Deutsche Bank Securities and Wells Fargo Securities participating as co-managers.
The cost of funding was significantly higher the blended average coupon of 2.64% that Exeter pays on its previous securitization, completed in May.
S&P was not asked to rate the May deal. But it assigned a AA’ rating to the senior tranche of a deal that Exeter brought to market in February.
In its presale report for the latest deal, S&P pointed to a deterioration in collateral for 2014-3 compared with the February deal, 2014-1. The weighted average loan-to-value increased slightly in 2014-3, to 111.22% from 110.81%, and the weighted average FICO decreased to 562 from 570. Moreover, the percentage of loans with a FICO of less than 540 increased, to 32.56% from 26.90%.
On the plus side, the portion of loans backed by new vehicles increased to 20.87% from 17.49%.
However the portion of loans with a term of 61-72 months increased to 86.88% from 82.25%. Longer term loans are riskier because there is a greater chance that a lender would not be able to recover the principal of a loan in the event of default