Fifth Third Bank is returning to sponsor a securitization of revenue from a pool of prime-quality retail installment auto loans. The issuance could be upsized from $1 billion to $1.6 billion.
J.P. Morgan Securities is the lead underwriter on the deal, which is Fifth Third's first of 2023, and eleventh term prime auto issuance overall, according to Moody's Investors Service. Known as FTAT 2023-1, the transaction will issue mostly fixed-rate notes from the structure, and the notes have legal final maturities ranging from Aug. 15, 2024 through Feb. 17, 2031. One of the A classes, the A-2-B tranche, will issue notes benchmarked to he Secured Overnight Financing Rate (SOFR), ratings analysts at Moody's said.
The underlying retail auto loans have a weighted average (WA) FICO score of 765, for both the base issuance amount and the upsized pool, according to Moody's. Also, the pool has a WA loan-to-value of 90.4% for the base pool, and a slightly smaller LTV level, 90.3% for the larger pool.
J.P. Morgan Securities is the lead underwriter on the deal. Credit enhancement to the class A notes starts at 3.75% of the initial adjusted pool balance, and as the pool amortizes that amount will grow to 4.25%, Moody's said.
Yet the pool does have a credit challenges, including the fact that contracts with an original term of greater than 60 months comprises 88% of the loan pool. Longer-term, prime-quality loans generally have weaker performance than those with shorter terms, because disruptions and losses have a higher chance of occurring over a longer time horizon.
The class A-2-B is exposed to the erosion of excess spread, in another potential credit challenge. They pay a floating-rate coupon that might represent up to 50% of the class A-2 notes. The assets pay strictly fixed interest rates, so a spike in the interest rates on the A-2-B notes could erode excess spread in the transaction, Moody's ratings analysts said.
Moody's expects to assign ratings of 'P-1' to the class A-1 notes and 'Aaa' to the A-2-A through the A-4 notes, the rating agency said.
