FC Funding is returning to the asset securitization market to raise $447 million in funding, in a deal with a stronger collateral pool composition than a recent transaction, and where the most senior class of notes should be repaid in less than 13 months.
The transaction, Flagship Credit Auto Trust 2023-1, has about 80.7% of loans originated through the lender's indirect program, or its network of franchise locations. This is about 4.0% lower than the amount of indirect channel loans in the previous transaction, according to Kroll Bond Rating Agency's pre-sale report on the deal. Based on static pool performance numbers, the rating agency assumes a a higher gross default rate on loans sourced through the indirect channel, KBRA said.
In another potentially positive turn, FCAT 2023-1 has a higher concentration of loans in Tiers 2 and 3—which represent the higher bands of its credit scoring system—and noticeably fewer loans in the lower groupings, Tiers 4 and 5, the rating agency said.
A pool of mostly fixed-rate installment loans extended to borrowers with subprime credit records secures the bonds to noteholders, according to Kroll Bond Rating Agency. Typically, the loans in the pool had a weighted average (WA) FICO score of 587, and a current principal balance of $24,798.
On the corporate side, FC Holdings had a lower net income as of Q3 2022, compared the same period last year, a change that KBRA chalked up to a higher cost of funds. Flagship Credit Acceptance and CarFinance Capital originated the loans in the pool.
KBRA expects FCAT 2023-1 to repay noteholders sequentially, starting with the class A-1 notes that should be paid in full in 13 months. After that, the sequential pay structure will follow through the rest of the deal until class E receives principal payments.
The notes have an initial overcollateralization of the initial pool balance, and will increase to 7.5% of the current pool balance, KBRA said.
As for credit enhancement, FCAT 2023-1 uses subordination, a cash reserve account and excess spread.
KBRA expects to assign ratings of 'K1+' on the A-1 notes; 'AAA' on classes A-2 and A-3; and 'AA+' through 'BB' on classes B through E.
