Foursight Gains Triple-A in New $173M Subprime Auto ABS

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Subprime auto lender Foursight Capital has obtained its first initial triple-A rating on its new $173.03 million auto loan securitization.

The Utah-based lender has previously had deals with original ratings as high as double-A, in 2014 and 2015, but its most recent deal in was only rated single-A by S&P Global Ratings, due to concerns about aggressive originations growth amid a lack of long-term performance data.

But the senior $133.89 million tranche in Foursight Capital Automobile Receivables Trust 2017-1 is carrying preliminary AAA ratings from both DBRS and Kroll Bond Rating Agency after the lender spent 2016 reducing new- and used-car originations, upgrading its customer credit profiles and gaining capital injections from parent firm Leucadia National Corp. (NYSE: LUK).

In the new 2017-1 transaction, Foursight has taken several steps to improve support levels and underlying credit metrics compared to its 2016 deal.

The five-year-old lender provided a boost to credit enhancement across all the notes, providing a 28.7% initial credit enhancement feature and a target enhancement of 30.95% to the Class A notes. Initial overcollateralization is nearly doubled to 7.75% on the senior notes, which are rated higher than the AA-level senior notes from last year that only required 3.7% OC.

The deal is also supported by a reserve account equal to 0.5% of the collateral pool and the overcollateralization level, as well as expected excess spread of 5.37%.

The percentage of prime loans in the pool were boosted to 7.26% (up from 6.66%), and the near-prime mix “is the largest of all the prior [Foursight] transactions while the subprime concentration is the second-lowest,” stated KBRA in its presale report. Foursight targets near-prime customers with a FICO score range of between 580-680.

The weighted average FICO of the pool rose to 634 from 632. Foursight has also increased the average current balance ($23,072) and coupon rates (10.84%) over 2016-1. KBRA also reported a decrease in maximum front-loan to value ratios on some subprime borrowers.

Boosting Foursight’s deal also was a servicer guarantee from Leucadia National Corp., and the return of Citibank as the backup servicer to Foursight on the managed portfolio of $420 million as of Dec. 31, according to KBRA.

KBRA has assigned a base case loss range of 5.95%-7.95% on the deal, slightly higher than last year’s range of 5.4%-7.4% on the FCRT 2016-1 deal. (After nine months through Feb. 2017, FCRT 2016-1 had a 3.75% delinquency rate and cumulative net losses of 1.9% -- below KBRA’s loss expectations).

DBRS projects pool losses at 7.2%.

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