First Investors Financial Services Group last year pruned its dealer base and tightened customer borrowing standards, but the longtime subprime auto finance company has not stopped tapping the securitization market for financing. It’s latest deal is for $198 million.
First Investors Auto Owner Trust 2016-1 is the 26-year old Houston finance company’s 19th securitization and its 12thsince the rebound in subprime new-and-used auto lending in 2011. The latest trust will issue six tranches of notes rated by Kroll Bond Rating Agency.
There are two Class A tranches rated ‘AAA’ by Kroll: $114 million of Class A-1 notes due 2020 and $35.2 million of Class A-2 notes due 2021. The subordinate notes due 2022 include a $10.5 billion Class B notes tranche rated ‘AA’, a Class C tranche totaling $15.7 million rated ‘A’, the $13.7 million Class D slice rated ‘BBB’ and a $9.7 million Class E tranche rated ‘BB.’
The notes are backed by $170 million in consumer auto loans primarily originated through indirect lending agreements with auto dealers. There will also also be a $30 million prefunding account to acquire additional loans.
The target overcollateralization rate is 4.55% of the collateral balance. Total initial credit enhancement is 26.9% on the Class A notes, down to 2.1% on the Class E notes. The targeted credit enhancement (which consists of overcollateralization, excess spread, cash reserves and the level of subordination of the junior notes class) ranges from 26.9% for the Class A notes to 2.1% for the Class E notes.
The loans have an average balance of $21,654 on six-year terms that, as with rival ABS subprime auto securities, are typically not seasoned beyond one or two months. Used car contracts comprise 71% of the total pool, lower than in recent transactions as First Investors slightly upped the number of new car loans in the portfolio.
The portfolio consists of 7,851 contracts divided between indirect loans (totaling $126.5 million of the pool) and direct-to-consumer refinancing agreements adding up to $43.5 million. The targeted customer base is the subprime borrower with average coupon rates of 13.15% and an average FICO score of 584 (the company targets customers in the 551-600 range).
The company has increased its managed portfolio of loans 24% since April 2014 to $1.17 billion as of last October. But the focus on reducing risk last year has led the company to originate 26% fewer loans through the first seven months of its fiscal year 2016. According to Kroll, First Investors also has trimmed has nearly 1,000 dealers from its indirect lender platform in 2015 (citing productivity issues or loss performance), leaving the company with 1,898 in its dealer base.
First Investors has also tightened borrowing standards, querying customers more closely on employment history, residency and non-borrower drivers listed on their insurance policies.
He company’s average loan-to-value ceiling on the loans is 124.81%, which is below Americredit’s 127.4% LTV ratio due mostly to its higher percentage of refinancing activity.
First Investors, along with other subprime auto lenders, is also facing increased scrutiny from the Consumer Financial Protection Bureau, the Department of Justice and the Federal Trade Commission. Last year First Investors fulfilled the terms of a consent order from 2014 for failing to accurately report consumer information to credit reporting agencies.
Wells Fargo is the trustee and custodian.