GM Financial cuts exposure to long-term auto loans in latest ABS

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GM Financial's second securitization from a new offering shelf includes fewer loans with very long terms, according to S&P Global Ratings.

GM Financial, d/b/a Americredit Financial Services, is marketing a total of $987.4 million of bonds across four classes of notes via GM Financial Consumer Automobile Receivables Trust (GMCAR) 2017-2. A $211.1 million money market tranche carries a preliminary A-1+ rating from S&P Global Ratings and A-1 from Moody's Investors Service; there are also three senior term tranches rated AAA: Class A-2 tranche of $349.7 million in fixed and floating rate notes; a fixed A-3 series totaling $323.36 million; and an A-4 fixed-rate rate of $80.73 million in notes.

The Class B notes ($16.25 million, rated AA+) and the Class C notes ($15.24 million, rated AA) are the only other notes being issued in the transaction. The sponsor will retain the ‘A+’-rated Class D notes class sized at $12.69 million for risk-retention purposes.

Credit enhancement on the senior notes remains the same (6.1%) as with GM’s initial GMCAR transaction, completed in April, but it is providing a slightly higher target yield supplement overcollateralization account of 5.8% from 5.49%.

In one important respect, the collateral for the latest deal is less risky than the prior transaction: there are fewer loans with extended terms, a feature of several recent prime and subprime auto loan securitizations by other sponsors. Borrowers typically use extended terms in order to lower monthly payments on vehicle they could not otherwise afford. They add to the risk in a deal because borrowers spend more time underwater, owing more than the value of their cars. But origination is slowing as dealers cope with slumping sales. (GM has reported a 5% month-to-month decline in sales for June).

Loans between 61 and 72 months at origination decreased to 49.5% of the collateral for GM's latest transaction, down from 51.3% from the April deal. The concentration of loans with 73-75 month terms decreased even more sharply to 11.7% from 15.8%.

The percentage of subvened loans, which benefit from lower-rate APRs supplemented by GM incentives to dealers, is 67%, up slightly from 66% of the previous deal. Subvened loans typically prepay and default at lower rates than nonsubvened loans, according to S&P.

Other credit characteristics of the pool of collateral are broadly similar to those of the previous transaction as well. The 38,463 loans have a slightly lower weighted average FICO scores (763 vs 769) from the first GMCAR transaction, but also have lower APRs and shorter terms. The loans have an average balance of $27,929, weighted-average original terms of 67 months and are seasoned 11 months.

S&P expects a cumulative net loss range between 1.15%-1.35%, in line with GM Financial’s first securitization this year.

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