A pool of auto loans extended to sub-prime borrowers is securing the $401.1 million asset-backed securities (ABS) deal from Flagship Credit Auto Trust, 2022-4.
Flagship Credit Acceptance and CarFinance Capital originated the loans in the underlying collateral, while Flagship services them, according to a pre-sale report from Kroll Bond Rating Agency. Used cars account for 80.6% of the pool, while new cars make up 19.4%.
Flagship will issue notes through a capital structure that will repay the debt sequentially. Otherwise, the notes benefit from initial overcollateralization, at 4.50%; subordination, a cash reserve account and excess spread.
Flagship originates loans through two marketing channels. Under its indirect channel, the company purchases automobile vehicle installment sales contracts from auto dealers. Those loans represent 84.8% of the pool. Meanwhile, Flagship's direct channel originates or purchases loans made directly to customers who are refinancing an existing auto loan, and those loans account for 15.2% of the statistical pool, as of the October 13, 2022 cutoff date.
Flagship uses an internal scoring model to assign loans to credit tiers, depending on their probability of default, with tier 1 having the lowest probability and tier 5 having the highest.
KBRA noted a couple of trends among deals leading up to the current Flagship 2022-4 transaction. For one, delinquencies in the 30-day-plus have not produced any higher gross losses. Also, recoveries in recent static pool vintages are retreating to historical averages on a month-over-month basis.
Based on its updated data for historical static pool losses, KBRA noted that 2021 quarterly vintages are performing worse than those of prior years. Based on recent delinquency trends and static pool loss performance data, the rating agency has increased its loss assumptions on all loan groups in its tier 1 direct loans.
Some $420 million fixed-rate, installment loans will collateralized the deal. S of the statistical cutoff date, and the loans had an average principal balance of $26,456. On a weighted average (WA) basis, the pool had a (WA) non-zero FICO score of 586, and average percentage rate of 18.4%.
