Despite a decline in originations, First Investors Financial Services Group is preparing one of its largest securitizations of subprime auto loans to date.

First Investors Auto Owner Trust 2016-2 is a $230 million asset-backed pooling of more than 11,000 new- and used-auto loans – a transaction exceeding the pool size and loan population of recent securitizations pieced together by First Investors, a company with more than 27 years’ experience in lending.  

The structure of the deal is led by two Class A tranches split between $130.8 million in four-year notes and $44 million in five-year bonds, each with a 25.5% initial credit enhancement and a preliminary ‘AAA’ structured finance ratings from Kroll Bond Rating Agency and Standard & Poor's. The target CE for each is 30.65%.

The CE is lower than First Investors’ prior deal in 2016, when the lender supported its senior notes with a 26.9% enhancement level to gain the ‘AAA’ rating from KBRA.

The capital stack also includes $11.2 million in Class B notes, with 20.63% CE and an ‘AA’ rating from KBRA, and $18.4 million of Class C notes with 12.63% enhancement and a preliminary ‘A’ rating. The transaction also offers $15.3 million in Class D notes rated ‘BBB’ and Class E notes totaling $10.3 million, rated ‘BB’.

Among other notable changes from First Investors' 2016 transaction in the boost in the targeted overcollateralization to 5.15%, and the increased excess spread to 8.16%. 

This is the company’s second securitization of the year, and 19th overall. Twelve of those asset-backs have been issued since 2011.

Originations have slowed at First Investors 23% for the year prior to July 31, due to a combination of competition, tighter credit underwriting and a lower number of potential direct refinance customers, according to a KBRA presale report issued Wednesday.

The company’s managed portfolio has decreased from $1.15 billion last year to $1.14 billion as of April 2016, as it also has reduced its dealer base to 1,684 by deactivating 540 dealer relationships in the first half of this year.

However, the company has recently extended its two warehouse financing facilities totaling $467 million into 2017 and 2018.

Although originations are falling, the latest transaction includes the largest collateral pool of supporting loans among First Investors’ recent deals.  The $230 million pool balance of 11,052 loans has slightly lower average account balances ($20,811) and a lower weighted average loan-to-value ratio (122.59%) than recent securitizations.

S&P stated it considers 2016-2 to have slightly better credit quality due to the improved LTV ratio and and FICO scores, to 587 from 584, and decreased its loss range expectation to 9-9.5% from 9.25-9.75% from the prior deal.

However, KBRA applied a slightly higher net cumulative loss expectation of between 8.95% and 9.45% to the new deal, compared to the 8.65%-9.15% range of the company’s 2016-1 transaction.

The loans continue to be utilized mostly for used car puchases (73.23% of the pool) and the latest transaction features a greater proportion of loans originated through indirect dealer channels (80.68%). Targeting subprime customers with average FICO scores between 551-600 (43.84%) and 601-650 (30.78%) remains First Investors’ sweet spot.

Wells Fargo is the trustee and custodian.

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