Subprime auto lender Flagship Credit Acceptance is stepping up the volume of online direct loans being pooled for a fourth new- and used-car loan securitization for 2019.
According to ratings agency presale reports, the $398.7 million Flagship Credit Auto Trust 2019-4 includes a 23% share of collateral loans originated through the company’s growing CarFinance.com direct financing channel.
That compares to 20.16% in Flagship’s previous $336.5 million securitization which priced in August. Last year, direct loans accounted for as few as 12.3% in a pair of trust portfolios sponsored by the Chadds Ford, Pa.-based company.
Flagship may also add more indirect loans through a prefunding account included in the deal to acquire more loans after closing; up to 20% of those new loans may be online originations.
The growing share of direct loans is the result of increased originations in that channel, as more consumers choose to shop and finance vehicles through online channels rather than through dealerships in which buyers can finance through Flagship’s indirect loan programs. Direct loans increased to 22% of total originations in 2019, compared to 16% in the first quarter, according to presale reports from Kroll Bond Rating Agency, DBRS Morningstar and S&P Global Ratings.
The increased share of direct loans may bode well for the transaction, given that online loans have significantly lower loss expectations – 7.25% vs. 13.2% for indirect loans, according to Kroll.
Kroll and S&P have assigned AAA ratings to the $262.5 million tranche of Class A notes that benefit from 35.5% credit enhancement. Those notes along with four subordinate note classes will be secured by 15,009 loans with an average balance of $21,357.
The loans are primarily for used vehicles (76.24% of the pool) with more than 85.2% exceeding 61 months in original terms. The weighted average loan-to-value ratio of 123.03%.
The securitization is the 18th to include both indirect dealer-finance loans through the Flagship Credit Acceptance unit and online loans through the CarFinance Capital LLC unit that Flagship merged with in 2014. The deal is also the 29h overall for Flagship.
Loss performance of Flagship securitizations have improved in 2018 and 2017 vintages compared to 2016, according to Kroll which maintains a base-case loss expectation of 11.35% unchanged from the prior Flagship transaction. S&P’s expected loss range is 12%-12.5%, down slightly from 12.25%-12.75% in Flagship 2019-3, while DBRS Morningstar pegs expected losses at 11.75% of the collateral pool.
