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GLS' next subprime auto ABS earns lower marks from Kroll

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Subprime auto lender Global Lending Services LLC continues to expand originations and tighten underwriting standards; as a result, the pool of subprime loans in its latest securitization is the strongest to date, according to rating agency presale reports.

But the $266.5 million GLS Auto Receivables Trust 2018-1 also benefits from fewer investor protections, and so earned a lower credit rating from Kroll Bond Rating Agency.

The collateral pool of loans totaling $297.7 million is the largest of the four prior securitizations GLS has issued since it began underwriting car loans in 2012. It also represents a step-up in borrower credit profiles, through a pool that has the lowest weighted average APR of any previous GLS trust transaction at 17.54%, and a weighted average FICO of 564 - the highest from among its past ABS pools.

Strengthened by its growing business with franchised auto dealers, GLS loan activity skyrocketed to nearly $560 million in 2017 from more than $274 million in 2016, according to Kroll.

That has likely helped the Blue Mountain-owned GLS to pick better-quality loans for its new pool, with the 2018-1 issue having its lowest-ever concentration of deep-subprime borrowers at 11.79% (with FICOs of 499 and below, or unavailable), compared with 15.34% in its 2017-1 transaction. The percentage of borrowers with FICOs between 500-549 is likewise at an all-time platform low of 29.14% of the collateral pool, compared with prior deals.

But GLS has also experienced a deterioration in performance in the 2015 and 2016 pooled originations that it spent last year improving upon. With 2017 origination performance limited, As a result, S&P Global will maintain the 21-22% estimated loss range in 2018 it assigned the 2017 deal, the agency stated in its presale report issued Thursday.

Kroll has lowered its estimated cumulative net loss range to 18.2-20.2% from the previous GLS deal of 18.45% - 20.45%. But the agency is pulling back from the AA rating it provided in GLS' two previous transaction, and issuing an A rating for the Class A tranche of three-year bonds totaling $206.9 million (S&P is also rating the deal an A, the same it has given to previous GLS deals).

The major difference in the new transaction is that it will issue only three classes of notes, That means the senior tranche benefits from less subordination than the comparable tranches of prior deals that had four and five classes of notes.

As a result, the subordination level for the 2018-1 senior notes is 20% and total credit enhancement is 30.5%, down from 44% and 44.3% in the 2016 and 2017 transactions, which both earned AA ratings from Kroll.

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Auto lending Subprime lending S&P Kroll Bond Rating Agency