Foursight Capital Auto Receivables is preparing to raise $182 million in asset-backed securities, with changes to its collateral pool that have mixed credit implications.
When Foursight Capital Auto Receivables Trust, 2022-2, came to market in July 2022, the called collateral accounted for 21.0% of the statistical pool. This time around, the FCRT 2023-1 has significantly reduced the concentration of called assets in the pool, to 0.52%, according to a pre-sale report from Kroll Bond Rating Agency. Called collateral has lower than expected losses, generally, due to significant seasoning, which raises the question of whether the FCRT 2023-1's underlying assets could be more vulnerable to a credit event.
In another change that is more of a credit positive, however, the current pool has a higher portion of Greenlight loans. Certain loans—mostly sub-prime and near prime—are covered by insurance policies that Foursight purchases, according to KBRA. Claim proceeds from these policies cover any deficiency balance on the defaulted contract and the related vehicle's liquidation proceeds. The trust will treat the proceeds as collections on the loan contracts and deposit the funds into the collection account with the sale and servicing agreement, KBRA said.
J.P. Morgan Securities is structuring lead on the deal, while Capital One Securities is joint lead, according to the rating agency. Foursight provides auto loans to borrowers of near-prime credit quality, mostly, and the FCRT securitizations reflect that. Near-prime loans account for 57% of the FCRT 2023-1 collateral pool, consistent with the platform's two most recent transactions.
On the corporate side, Foursight made a number of changes to its underwriting practices, including eliminating the application flow to the funding of Open Lending; increasing the minimum credit history to two years, from one; and limited the inclusion of payment-to-income (PTI) loans.
Overall, KBRA increased its assumptions for FCRT 2023-1's loss assumptions for the deal's prime, near prime and sub-prime tiers, accounting for some recent static pool trends. Now, the rating agency's lifetime expected cumulative expected cumulative net loss is 10.5%, up from 8.30% for the FCRT 2022-2.
KBRA expects to assign ratings of 'K1+' to the class A-1 notes; 'AAA' to classes A-2 and A-3 and 'AA' on the class B notes; 'A-' on the class C notes; and 'BBB-' on the class D notes.
S&P Global Ratings says it expects to assign 'A-1+' ratings to the class A-1 notes; AAA' to classes A-2 and A-3 and 'AA' on the class B notes; 'A' on the class C notes; and 'BBB' on the class D notes.
Scheduled final payment dates range from Feb. 15, 2024 to six years later.
