With the auto sales industry still zooming, First Investors Auto Owner Trust 2021-2 is coming to market with a $325 million transaction, a deal that will support the business of lending to fund subprime auto loans.
The capital structure will bring five classes of notes to the market, which will be backed by a pool of fixed-rate auto loan contracts on new and used vehicles. Legal final maturities on the notes range from March 2027 to November 2028.
Credit enhancement ranges from 24.7% on the most senior class of notes to 1.5% on the most subordinate class, among the notes that Kroll Bond Rating Agency expects to rate, the company said.
The credit profile of the underlying borrower pool paints a picture of subprime borrowers. On a weighted average (WA) basis, the borrowers’ FICO score was 594. While First Investors Financial Services, Inc., which is selling the loans into the trust serves customers with FICO scores between 500 and 650, KBRA said. Its customers have typically handled credit responsibly, but have lived through an adverse life event, such as a medical event that incurred uninsured costs, a job loss or a divorce, that impacted their credit. More than one third, 34% have previously filed for bankruptcy.
The WA loan-to-value ratio is 119.1%, which is lower compared with previous deals from the FIAOT program. The WA interest rate in the pool is 13.9% on loan balances averaging $19,900.
The loans in the trust have been seasoned for four months, a close return to ranges typically seen just before the onset of the COVID-19 pandemic. FIAOT-2021-2 is furnished with a prefunding account that is authorized to purchase additional loan receivables after closing, up to an amount equal to 20% of the closing date pool balance, plus the expected balance of subsequent receivables for up to three months after closing, KBRA said.
Geographically speaking, the loans in the pool are most highly concentrated among Texas (19.%), California (8.1%), and Florida 7.1%.
In terms of credit enhancement, FIAOT 2021-2 has several strategies for credit enhancement, consisting overcollateralization, excess spread, a reserve fund funded at closing and subordination.
KBRA intends to assign ‘AAA’ ratings to the $4249 million class A notes; ‘AA+’ to the $21.9 million class B notes; and ‘A’ to the $26 million class C notes.
