FC Funding is returning to the asset-backed securities market to raise $450 million, supported by a pool of auto loans. While these receivables can be described as non-prime—they have a weighted average, non-FICO score of 586—Flagship Credit remains committed to tightening its origination strategies to focus on higher-tiered borrowers.
The current transaction, Flagship Credit Auto Trust, 2023-2, or FCAT 2023-2, is supported by better performing tiers of loans, compared with the FCAT 2023-1, according to a pre-sale report from Kroll Bond Rating Agency. Indirect originations account for 82.9% of the collateral pool, compared with 80.7% of the FCAT 2023-1 assets.
FC Funding's proprietary qualification process categorizes borrowers into five credit tiers, based on the probability of the loan defaulting. Borrowers in credit tier 1 have the lowest rates of default, while those in credit tier 5 have the highest, according to KBRA. In the FCAT 2023-2 deal, about 21% of borrowers fell into Tier 1, an increase over the 15% in that tier in the FCAT 2023-1 transaction. About 46% of borrowers were in Tier 1 in FCAT 2023-2, compared with 40% in FCAT 2023-1, the rating agency said.
The pool also has a slightly heavier weight of loans that were originated through indirect channels, about 82.9%, a little more than two percentage points higher than the previous deals, and they were the better performing tiers at that.
Barclays and Wells Fargo Securities are expected to manage the deal, which is slated to close on May 4, according to the Asset Securitization Report's deal database. Issued notes will be benchmarked to the interpolated yield curve and be repaid through a senior-subordinate structure, the database finds.
S&P Global Ratings and DBRS Morningstar expect to assign ratings of 'A-1+' and 'R-1', respectively, on the most senior class of notes, A-1. Pricing guidance on that tranche is for about 40 basis points over the I-Curve. Guidance on the AAA-rated notes, classes A-2 and A-3, range from 105 to 100 and 120 to 125 bps, respectively, over the I-Curve, according to the database.
Initial credit enhancement amounts range from 37.15% on the class A notes to 1.50% on the class E notes, according to KBRA. Other enhancements include 0.50% initial overcollateralization, which will increase to 6.75% of the current pool balance, subject to a 1.00% floor. There is also a cash reserve account equaling 1.00% of the initial pool and excess spread of 10.38%.
Ratings from DBRS, KBRA and S&P mirror each other, at least on the surface, on classes B, C and D, garnering initial ratings of 'AA', 'A' and 'BBB', respectively. On the class E notes S&P expects to assign rating 'BB-', while DBRS and KBRA both intend to assign ratings of 'BB'.
