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GM Financial, Santander continue ABS credit-quality improvement

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GM Financial and Santander Consumer USA are each launching a second $1 billion-plus auto-loan securitization for 2018, as both continue to improve on underlying loan quality collateral.

GM Financial Consumer Automobile Receivables Trust 2018-2 is a $1.23 billion transaction of prime new and used-car vehicle loans underwritten by GM Financial, the captive-finance subsidiary of General Motors. The company, which is building up more prime-quality loans into its formerly subprime managed portfolio, is coming off a year in which it cut delinquencies down to 6.1% of its $27.6 billion portfolio of managed receivables, from 7.3% the year prior, and net credit losses were 2% of the average retail receivables (down from 2.6% in 2016).

Despite the improvement, GM Financial is receiving higher expected loss projections in the latest pool due to a sharp rise in the percentage of long-term retail contracts being included.

Santander Drive Auto Receivables Trust 2018-2 is the second issuance of securitized non-prime quality installment auto loan contracts originated or acquired by Santander Consumer USA. It’s expected net losses of 16% are holding steady with what Moody’s Investors Service forecast for Santander’s 2018-1 transaction in February, and below the 17% loss-levels assigned to many of Santander’s pools in 2017.

GM Financial
GM Financial is the d/b/a of Americredit Financial Services, the legacy subprime lender that GM acquired in 2010 and later elevated as its prime captive finance arm in place of Ally Financial (formerly General Motors Acceptance Corp., or GMAC).

It is the company’s fifth prime-loan ABS transaction since launching into prime securitizations a year ago. GM Financial’s prime auto-loan origination history is limited, dating back to only 2014.

The GM transaction includes a $439 million in three-year Class A-2 bonds split between fixed- and floating-rate tranches; a $393.8 million Class A-3 tranche due 2022 and a $10 million, five-year Class A-4 tranche. The deal also includes a $244 million money market tranche rated A-1+ by S&P and F1+ by Fitch Ratings.

All of the senior term notes are triple-A rated by Fitch Ratings and S&P Global Ratings; the money-market and term notes each benefit from 6.1% credit enhancement.

According to presale reports, GM Consumer 2018-2 benefits from a weighted average FICO score of 774 (an increase from 2018-1’s 72), and has a collateral mix of 87.4% new vehicle contracts in the pool. Trucks, SUVs and crossovers continue to be a growing segment of GMF’s securitizations, now making up 83.9% of the latest pool, compared to a range of 77.7-79.5% for the last four GMF transactions.

Loss projections are increasing to 1.45% from Fitch, up from 1.4% in the prior deal. S&P, which did not rate this year’s earlier GM Financial auto-loan ABS, expects losses will be 1.05%-1.25%.

Fitch Ratings noted that lengthier loans of 61 months or more increased “markedly” to 68.7% of the pool, compared to 57.6% n GM Financial’s first transaction in January (which was also the first retail auto-loan ABS of 2018). Extended term loans carry historically higher averages for defaults and delinquencies for managed portfolios and securitizations of auto lenders.

The aggregate balance of the 42,215 loans in the pool is $1.36 billion, with an average principal balance of $32,169 and an average APR of 2.5%.

The $1.1 billion SDART 2018-2 has a similar fixed/floating rate split tranche atop the capital stack totaling $250 million (below the $210 million Class A-1 money-market notes, rated P-1 by Moody’s and F1+ by Fitch). The Class A-2A and A-2B notes have 2.5-year maturities, and carry a triple-A rating from Moody’s and Fitch. The senior notes benefit from 51.7% credit enhancement.

The transaction’s four subordinate note tranches include the $166.6 million Class B notes due 2022 (rated Aa1 by Moody’s, AA by Fitch); $151.7 million in Class C notes due 2023 (Aa3/A); $106.5 million in Class D notes due 2024 (Ba2/BBB); and the $83.3 million in non-issued Class E notes (BBB by Fitch, unrated by Moody’s).

Despite rising losses in 2015-2017-vintage securitizations stung by deteriorating underlying credit quality, the lower loss projections in the two deals this year benefit from Santander’s drive to improve portfolio metrics. The new deal has a higher-average FICO scores (610 for the 2018-2 pool), lengthier seasoning, and the trust’s recent practice of agreeing to repurchase loans out of its pools that don’t have at least two payments made on the accounts.

The balance of the loans in the pool if $1.23 billion, or an average balance of $16,610 and APRs of 15.75%.

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Prime auto ABS Subprime lending GM Financial Santander Consumer USA