Flagship Credit Acceptance and CarFinance subprime auto loans are to be pooled in a single securitization for the first time since the two lending platforms were merged in January.

The two lenders are both owned by Perella Weinberg Partners, but had established separate securitization platforms. The loans of the combined company will be pooled together under the Flagship Credit Auto trust. In total, $450 million of subprime loans collateralize the 2015-2 transaction.

Kroll Bond Rating Agency has assigned a preliminary ‘AA’ rating to $336.3 million of class A notes benefitting from 27.5% credit enhancement due in October 2020; an ‘A’ rating to $44.3 million of class B notes with 17.75% credit enhancement due in December 2021; a ‘BBB’ rating to $40.2 million of class C notes with 8.9% credit enhancement due in December 2021' and a ‘BB' rating to $29 million of class D notes with 2.5% credit enhancement due August 2022.

Flagship loans make up 48% of the collateral pool and CarFinance loans make up another 48%.  The rest of the pool is comprised of loans sourced through a marketing partnership with Military Installment Loans and Education Services (“MILES”), a military lending platform owned by Dealers’ Financial Services (DFS). Flagship has funded loans sourced by MILES since January 2012 but in June 2015, the lender and DFS agreed to terminate the MILES program.

The credit characterisitics of the pool are fairly similar to those of past transactions by by both issuers. Weighted average FICO scores remain in the 590 range, similar to Flagship’s 2015-1 deal issued on March 12 and CarFinance 2015-1, issued on February 26.  Loans are on average one month seasoned, which is also within range of previous subprime transactions issued by the pair. The percentage of used car vehicles has dropped to 75%, down from 77% in Flagship 2015-1 but up from 71% of CarFinance 2015-1.

The merger has strengthened the credit profile of the subprime lending platform. The combined company has a managed portfolio of approximately $2.3 billion as of June 30, 2015. Flagship has also increased its warehouse lines, which before the merger consisted of four facilities for $775 million, to a $1.4 billion warehouse facility with six major financial institutions in April 2015.

Indirect loan originations, which are loans originated at the dealership level, are still financed under both the CarFinance and Flagship platforms. However indirect loans will eventually be financed only under the Flagship program and the CarFinance platform will finance direct loans. The issuer plans to test a common loan origination system and plans to have new originations boarded on a common servicing system.


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