Harley-Davidson Credit is returning to the asset-backed securities market to raise $578.9 million, offering a portfolio secured by loans that were already prime and look even better compared with previous deal's assets.
In one of the deal's credit strengths, Fitch Ratings noted that the transaction has a base case cumulative net loss (CNL) proxy of 1.50%, a reduction from a CNL of 1.60% in the 2021-B deal.
Another rating agency, Moody's Investors Service, says that its CNL expectation for the asset pool is 1.35%. Although that is lower than Fitch's base case CNL proxy, Moody's says that its CNL expectation is 10 basis points higher than the 2022-A due to deteriorating performance observed in recent origination vintages.
The two rating agencies seem might have differing outlooks on CNL, but they agree that HDMOT 2023-A's collateral pool is stronger, even if it is marginally so. The 32,361 underlying loans have a weighted average (WA) FICO score of 758, representing very incremental increases from the 754 WA FICO on loans in the 2021-B. The loans have an average current principal balance of $19,422, and a WA annual percentage rate of 7.52%. With a WA original term of 71, the loans have seasoning of about 9 months and a WA remaining term of 62 months.
J.P. Morgan Securities is lead underwriter on the transaction, which is expected to close in about two weeks, according to a report from Moody's Investor's Service.
Credit enhancement builds in the pool as the notes amortize, according to Moody's. At closing, which is expected in about two weeks, the deal will have a non-declining overcollateralization of 4.75% of the initial adjusted pool balance, and a non-declining reserve fund of 0.25% of the initially adjusted pool balance, the rating agency said.
The rating agencies noted that receivables in the late 2021 through 2022 deals are showing weaker performance compared to previous vintages. Also, motorcycles are facing the same quandary as the automobile sector: the recent spike in demand and prices could reverse. Should that happen, lower recovery rates could lead to higher loss severity and higher net losses in the pool.
Moody's intends to assign ratings of 'P-1' to the A-1 notes and 'Aaa' to the A-2A through A-4 notes. Fitch says that it expects to assign ratings of 'F-1+' to the A-1 notes and 'AAA' to the A-2a through A-4 notes.
The notes have legal final maturity dates of March 2024 through June 2030.
