A pool of subprime auto loans on new and used vehicles will collateralize $559.9 million in asset-backed securities, representing the sixteenth securitization from Global Lending Services since they debuted on the market in 2014.
Global Lending Services originates the loans through franchise and independent auto dealers, and the loans in the CLS 2021-2 pool have a weighted average FICO score of 570, an average current balance of $18,688 and a weighted average interest rate of 18.38 percent, according to Kroll Bond Rating Agency.
The deal, GCAR 2021-2, has a number positive features from a credit perspective. Both the underwriting and risk management process are automated heavily, technology driven and multistep. Every loan application decision is made this way.
GLS has been profitable since 2017, and reported positive annual net income of $28.5 million as of March 31, 2021. By that period the company also had total assets of approximately $3.1 billion and total members’ equity of $240.9 million.
KBRA found other positives about the deal, mainly relating to the structure. Notes are repaid in a sequential structure. Principal on the class A notes will be repaid in full before payment begins on the class B notes, followed by all subordinate notes are repaid through class E.
Initial overcollateralization is 3.10 percent of the cutoff pool balance and will increase to a target overcollateralization equal to the sum of equal to 12.1 percent of the current pool balance, plus 1.5 percent of the cutoff pool balance. The deal also benefits from subordination, a cash reserve account and excess spread.
The deal also has an initial credit enhancement of 52.8 percent, the second highest level of initial credit enhancement on the CGCAR transactions since 2017. Only the deal immediately preceding GCAR 2021-2, the GCAR 2021-1, had a higher initial credit enhancement, of 54.2 percent.
Geographic diversification is another plus, as Texas accounts for 12.8 percent of the collateral pool, followed by California (7.7 percent), and Florida. Those three states account for the highest state concentrations.
KBRA also noted that Wells Fargo is acting as backup servicer.
