GFC Lending, a unit of DT Acceptance Corp., is marketing $165 million of securities backed by subprime auto loans, according to DBRS.
GOFAST 2015-2 is the company’s fifth securitization and the second rated transaction. The trust will issue three tranches of notes; the $120.3 million class A notes benefit from 18.5% subordination and are provisionally rated ‘A’ by DBRS; the $25.1 million class B notes benefit from 8% subordination and are rated ‘BBB’ and the $19.2 million of class C notes are rated ‘BB (low)’.
The notes are backed by retail installment sales contracts originated and serviced by GFC, also known as GO Financial. Wells Fargo Bank is the backup servicer.
There are a number of safeguards in the deal, including overcollateralization, which is initially expected to be 31.25% of the initial pool balance. Also, the excess spread, or difference between interest rates earned on the collateral and paid out on the notes, is approximately 11.11%. (The loans have a weighted-average coupon of 20.24% and the notes pay 5.07%; there is also a 4.00% servicing fee, 0.05% backup servicing fee, and 0.01% trustee fee.)
There’s also a mechanism in place to reduce losses in the even that borrowers default: GO incentivizes dealers to use global positioning system units on vehicles, though this is not required. During 2014, 48% of deals funded by GO included GPS units, while 30% of the deals included GPS units for 2015 YTD, according to the presale report.
GPS is used only to locate vehicles to be repossessed. And, according to the report, the cars are not equipped with starter interrupt devices. DBRS does not elaborate of how the vehicles are repossessed once located.
In the event that repossessing and selling the vehicle doesn’t generated enough money to repay loan principal, GO Financial reports all deficiencies to credit bureaus. Historically, it does not seek judgments on deficiencies or otherwise initiate collection by litigation processes, though it has recently begun exploring the sale of deficiency balances through the use of a broker.
DBRS’ presale report does not describe these practices as either credit positive or credit negative.
GO Financial was formed in December 2011 and is owned by DT Acceptance Corp., also known as DriveTime, to purchase subprime auto loans from independent non-DriveTime-affiliated dealerships.
The company continues to leverage many shared resources with DriveTime.