Flagship is marketing its fourth subprime auto loan securitization since its merger with CarFinance in January 2015, according to Kroll Bond Rating Agency.
FCAT 2016-2 will issue five classes of notes that KBRA has assigned preliminary ratings ranging from ‘AA’ to ‘BB.’ The transaction has initial hard credit enhancement levels ranging from 29.25% for the class A-1 and class A-2 notes to 4% for the class D notes.
This transaction includes loans originated from both the Flagship Credit Acceptance and CarFinance Capital branded origination channels, both of which are owned by Perella Weinberg Partners and have merged under parent company FC HoldCo. The Company has a managed portfolio of approximately $2.8 billion as of February 29, 2016 and originated approximately $1.6 billion in loans in 2015
As of the March 31, 2016 cutoff date, FCAT 2016-2 contains 79.68% of loans originated by Flagship’s indirect program, and 1.82% and 14.71% of loans originated by CarFinance’s indirect and direct programs, respectively. In addition, 3.79% of the principal balance of contracts was originated from Flagship’s active duty military lending program
The latest deal also contains 4.96% of loans with original terms of over 72 months, down from 6.47% in the previous deal. CarFinance began originating loans with original terms of 75 and 78 months in November 2013; they are only offered to customers that Flagship considers to be lower risk by Flagship. The company expects performance of these loans to be similar to the traditional 72 month loans.
Nevertheless, KBRA has adjusted its base case loss expectations for these loans given the lack of performance data and potential for higher loss frequencies and higher loss severities due to the longer terms. The rating agency's weighted average base case expectations for cumulative net losses for the dea lis in the range of 11.25% - 11.75%.