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GLS sponsors first subprime auto ABS deal after DOJ probe dismissal

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Global Lending Services says it is no longer subject to a U.S. Department of Justice investigation into the lender's marketing, underwriting and securitization practices with auto-loan receivables.

According to a report from Kroll Bond Rating Agency, the DOJ informed the lender in December that the department had dropped the probe into GLS and issued no enforcement actions.

GLS had been among "several" subprime lenders (unnamed in Kroll’s report) included in the investigation launched in 2014, according to the agency.

The report did not state whether other lenders are still being investigated. DOJ had issued subpoenas to GLS seeking documents and communications “relating to the underwriting criteria used to originate GLS' automobile loans and the representations and warranties relating to the underwriting criteria when the loans were securitized,” according to Kroll.

GLS said its lawyers complied with the requests, and in December, the lender “was notified that the DOJ was closing its investigation as it related to GLS with no enforcement action taken," the report added.

The note was included in a presale report assessing GLS’ new $432 million GLS Auto Receivables Issuer Trust 2020-1 asset-backed transaction, the lender’s first sponsored pool of auto loans for the year.

The GLS transaction is divided among four note classes, with the $266.21 million Class A tranche carrying preliminary AA ratings from Kroll. The Class A notes benefit from 42.15% credit enhancement.

The loans in the pool were primarily underwritten for borrowers with poor credit (a weighted average FICO of 563) and originated for purchases of used vehicles, which make up more than 77% of the collateral pool. The weighted average interest rates of the pooled loans is 18.56% with average terms of 69 months.

Borrowers have little or no equity in the vehicles included in the collateral pool, with an average loan-to-value ratio of 119.36%.

Kroll has a projected base-case cumulative loss estimate of 18.3%, compared to 17.3% in GLS’ prior deal that priced in October.

“The increase in loss expectation was due to changes in pool composition and KBRA’s higher loss assumptions for several credit grades,” the report noted, as GLS increased the volume of originations in its third-lowest tier of borrowers to 22.07% of the pool, compared to 15.43% in the GCAR 2019-4 pool. “The pool shift is consistent with GLS’s strategy to target slightly lower credit quality borrowers.

The $2.2 billion-asset GLS has vastly increased its origination volume in recent years. GLS underwrote only $103.9 million in loans in 2013, but had a tenfold increase to $1.06 billion by 2018. It reached $1.53 billion in originations through the first 11 months of 2019 – a 63% increase from the January-November 2018 period.

The securitization is the second asset-backed offering by GLS since majority owner BlueMountain Capital was acquired by Assured Guaranty Ltd. in October 2019.

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Auto ABS Subprime lending