Foursight Capital Auto Receivables Trust, 2022-1 is preparing to issue $293 million in asset-backed securities collateralized by a pool of near-prime auto loans on new and used vehicles.
Using a subordination structure, in which the class A notes will receive principal payments in full before classes B, C, D and E, according to a pre-sale report from Kroll Bong Rating Agency.
Credit enhancement on repayment of the notes comes from overcollateralization, a reserve account funded at closing and with each additional funding, and excess spread. Initial overcollateralization is 0.25% of the sum of the initial pool balance and following receivables balance purchased during the prefunding period for the duration of the transaction.
At closing, a cash reserve account will be funded equaling about 0.50% of the initial pool balance and on each subsequent purchase date, 0.5% of the subsequent loan balance. As for excess spread, it measures approximately 8.5%, based on an expected weighted average contract rate of 12.6%, minus a 1.5% servicing fee, and an expected weighted average life adjusted note coupon of 2.5%.
J.P. Morgan Securities has led all of Foursight’s previous transactions since FCRT 2018-1, according to Finsight. FCRT 2022-1 will use the proceeds from the issuance to pay down existing warehouse debt and to fund general corporate purposes, KBRA said.
One potentially positive aspect of the transaction is that Foursight is a wholly owned subsidiary of Jefferies, a well-capitalized parent. In this deal Jefferies is providing a “servicer guarantee” that guarantees the covenants and obligations for the servicer.
KBRA noted a few characteristics that carry with mixed credit implications. For one, the weighted (WA) average original term for loans in FCRT 2022-1 is 71.8 months. Also, 93.1% of the loans have an original term greater than 60 months. Loans with longer terms have a slower principal amortization than shorter term loans, as a result, the financed vehicle may be less than the outstanding balance of the loan for a longer period of time.
As for underwriting, KBRA believes the criteria, supervision from senior management and the use of preventive detective controls do mitigate manual underwriting risks. Going forward and as the company’s loan volumes increase, however, the company might benefit from further automation to handle the additional volume, boost efficiencies and standardize the credit underwriting process.
