GM clips hurricane-region loans from $1B prime auto ABS

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GM Financial has taken a scalpel to its new $1 billion prime auto loan securitization to carve out any loans with ties to the hurricane-damaged regions of Texas, Florida and Louisiana.

According to S&P Global Ratings, GM Financial Consumer Automobile Receivables Trust (GMCAR) 2017-3 excludes loans with Florida billing addresses among the 38,267 in the pool, and restricts Texas- and Louisiana-based loans from borrowers living in counties or parishes that were designated as disaster areas by the Federal Emergency Management Agency.

GM Financial is the latest lender to take active steps to limit asset-backed investors’ exposure to this summer’s epic storm damages.

American Honda Finance Corp., Santander Consumer USA, USAA Federal Savings Bank and Fifth Third Bancorp each made efforts this month to cull Houston-region loans from its pool, but GMCAR 2017-3 is the first publicly rated transaction that also incorporates the aftermath of the damage from Hurricane Irma’s Sept. 11 arrival in Florida into shaving its pool composition.

Texas, home state for the Fort Worth-based GM Financial, is normally the largest geographical concentration in the captive lender’s securitizations. But the trust’s exposure to Texas loans in its 2017-3 receivables balance of $1.07 billion is just 9.51%, compared to 15.3% for its $987 million GMCAR 2017-2 deal in July and 16.67% in the GMCAR platform’s debut issuance earlier this year in March.

Analysts have warned that auto-backed securities with existing exposure to the Texas and Florida borrowers residing in flooded and wind-damaged regions could see an interruption in cash flow later this fall from servicing disruptions, or payment delays from insurance claim settlements.

By inoculating the collateral from problem regions, GM Financial is able to maintain the expected loss range levels (1.15%-1.35%, per S&P) of its two prior deals, as well as improve on some of the credit metrics from its originations of new and used auto, SUV and light-duty truck loans through GM franchised dealers, for whom the GM subsidiary has been originating captive-finance loans since 2014.

The capital structure of GMCAR 2017-3 includes a Class A-2 $335 million split fixed-/floating-rate tranche with a 2020 maturity date (with a maximum $167.5 million in variable-rate notes); a $331 million Class A-3 series due 2022; and an $84.8 million Class A-4 offering of six-year notes. All of the notes carry preliminary triple-A ratings from Moody’s and S&P, and have 6.1% credit enhancement support (slightly above the CE levels of other captive-finance issuers, due to a limited securitization history for the fledgling platform).

The senior notes also include a one-year $205 million Class A-1 money-market tranche that is rated A-1 by S&P and P-1 by Moody’s.

The subordinate notes being offered are a $16.2 million Class B series and a $15.23 million Class C tranche. The $12.69 million in subordinate Class D notes are to be retained.

The deal’s credit enhancement also includes a yield-supplement overcollateralization amount of $55 million, an enhancement to the pool to make up for the subvented incentives from dealers offering discounted APRs for new vehicles.

Some the credit metrics of the pool are slightly improved from GMF’s second deal, completed this summer. The weighted average FICO of 771 is an increase from 763, putting GMF at the “higher end” of other peer captive-finance collateral finance pools, accoridng to S&P. The weighted average loan-to-value ratio fell to 90.8% from 96%, and the percentage of new-car loans increased to 85% from 79%.

The volume of loans with original terms of 61 to 75 months fell to 48.6% from 49.5%; however, GMF did include more loans in the 73-75 month term range, which comprising 12.1% of the pool, up from 11.7%.

GM Financial, which was formed as a subsidiary of GM following the automaker’s 2010 acquisition of AmeriCredit, has completed over 90 public retail auto loan securitizations, five dealer-floorplan asset-backed offerings, and 11 auto lease transactions since 1994 (including AmeriCredit platform issuances).

As of June 1, GM had a portfolio of 1.1 million auto loan contracts with an outstanding balance of $26 billion, including subprime loans through its AmeriCredit brand, up from $19.4 million at the same period in 2016.

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