GM Financial 1st out of gate with $1.25B prime auto ABS
Auto lenders are typically first out of the gate with securitizations at the start of the year, and 2019 is no exception, as GM Financial launched a $1.25 billion prime auto loan transaction on Thursday.
The deal is the eighth by the captive finance arm of General Motors since the automaker acquired the former AmeriCredit in 2010. GM Financial offers loans through 14,000 dealers worldwide, it has underwritten prime loans since 2014, and in January 2016 it became the exclusive provider of GM-subvented loans, which offer cheaper financing to borrowers with very strong credit.
The collateral for GM Financial Consumer Automobile Receivables Trust 2019-1 features a higher weighted average borrower FICO than any prior GM Financial deal, according to rating agency presale reports.
It also sports lower projected cumulative net losses from Fitch Ratings of just 1.25%; that compares with a range of 1.4% to 1.5% for the four transactions GM Financial completed in 2018. In its presale report, Fitch noted that it relied on performance data from on 2017 and early 2018 deals issued through GMF’s relatively new prime-loan GM Financial Consumer Automobile Receivables Trust (GMCAR) platform. Previously, the rating agency had to rely on data from GM Financial's peers to estimate losses, given the insufficient historical data from GM's new issuance shelf.
The 1.25% loss expectation is a conservative estimate, as well. Under current macroeconomic conditions and GM Financial’s demonstrated strong credit quality in recent originations, Fitch is confident that actual net loss range are likely to range between 0.6%-0.9%.
“Recent 2016-2017 losses on GMF’s managed portfolio and securitizations are low and have been improving,” the presale report states.
That figure is in line with the 0.85% net loss expectation for the deal estimated by Moody’s Investors Service, a figure unchanged from Moody’s projections for the GMCAR 2018-4 transaction.
Eight tranches of notes will be issued in the transaction, including $228 million in money-market notes with preliminary F1+ ratings from Fitch and P-1 from Moody’s. The triple-A notes include a split fixed- and floating-rate Class A-2 notes offering totaling $440 million due 2022, a $326 million Class A-3 notes tranche due 2023, and a $100.8 million Class A-4 tranche due 2024.
The portfolio has a “strong” WA FICO of 778, according to Fitch, with 84.2% of the pool tied to borrower accounts with FICOs above 700. That compares to 76.9%-82.6% in prior transactions.
More than 87% of loans finance new vehicles, and 58% of the loans have longer terms of 61-72 months. That’s lower than 65% in the GMCAR 2018-4 transaction, but higher than prior pools issued through GMCAR.
For the first time, the proportion of trucks, sport utility and crossover vehicles has exceeded 90% for a GM Financial transaction, a reflection of the low volume of passenger sedans that GM is currently manufacturing and selling. Sedans are likely to be further diluted in future GMCAR pools, with GM announcing in November it was shutting five North American plants and discontinuing its Chevrolet Cruze, Volt and Impala lines.
The GMF managed loan portfolio totaled $32.6 billion as of Sept. 30, a 21% surge from the third quarter of 2017 and 50% since the end of 2016, according to Moody’s. Delinquencies continue to shrink, down to 4.9% compared to 5.6% a year earlier, while annualized net losses are down to 1.6% from 2% a year ago. The improvement is cited to the transition to more prime borrowers in GMF’s originations mix, plus the “relatively healthy” market values of used cars.
GM Finance’s elevation to captive finance status in 2014 has allowed the lender to dramatically improve static pool performance the last two years, after launching its prime auto loan ABS platform. The WA FICO of 2014 and early 2015 deals featuring nonprime borrowers was 693, but has averaged 752 for the 13 quarters after the third quarter of 2015.
Cumulative losses in static pool performance have “improved notably,” with the three transactions from 2017 and the first deal of 2018 so far tracking at loss performances under 1%.