Subprime auto-loan ABS issuers are back in the market – but not without some steep collateral concessions to investors wary of the risk from long-term COVID-19 economic fallout.
Flagship Credit Corp. last week launched a new $200 million securitization of subprime loans that had considerably more credit enhancement than its prior asset-backed deals, supported by a super-sized collateral pool ($289.9 million in outstanding balances), junior-note subordination and reserve funds.
The Flagship Credit Auto Trust 2020-2 transaction is only the second subprime auto-loan ABS transaction in the last two months, following the pricing last week of an American Credit Acceptance-sponsored $209.3 million bond offering backed by $266.7 million in auto-loan originations.
In both cases, according to presale report data, the issuing trusts of both lenders lightened the risk for investors. For instance, Flagship’s deal features a 41.9% CE level for the senior Class A notes; its first vehicle-loan backed ABS issuance earlier this year benefited from just 35.5% enhancement.
Chadds Ford, Pa.-based Flagship also boosted the level of borrowers from its highest internal credit tiers (61.7%) versus 57.8% in FCAOT 2020-1, a slight decline in loans with extended original terms of 73-78 months, and more seasoning (six months). Flagship is also including a larger amount of called collateral (9.5% of the pool) from a retired 2015 securitization, providing a collection of loans with long-established payment histories.
The deal has a $128.59 million Class A tranche with preliminary AAA ratings from S&P Global Ratings and Kroll Bond Rating Agency.
S&P has expected cumulative net losses of 14-15%, while DBRS Morningstar estimates projected losses at 13.5%.
Barclays is underwriting the deal.
