Harley-Davidson Motorcycle Trust, or HDMOT 2021-B, is issuing $605 million in asset-backed securities secured by loan payments for new and used motorcycles, all manufactured by Harley-Davidson, Inc., using the proceeds to support vehicle financing and general funding purposes.
Barclays Capital is lead underwriter on the deal, which is expected to benefit from increasing excess spread due to its cost of funding, and consistent hard credit enhancement, according to Fitch Ratings. Excess spreads sits at about 5.65% annually for the current transaction, which is in line with the 5.8% in the 2021-NR series of notes, and above the 3.3% to 3.8% for deals in the series dating back to 2016, according to Fitch. In terms of credit enhancement, the level of initial hard credit enhancement stands at 5.0%.
The loans have a shorter amount of seasoning at five months and longer weighted average (WA) remaining terms, compared with recent auto loan receivables deals, according to Fitch. Yet the deal has several positive aspects, including a (WA) FICO score of 754. The current average principal balance is $19,463.
Amid the global coronavirus pandemic, auto vehicle prices have increased, especially through the used channel, as supply-chain and other disruptions have tamped down on manufacturing.
For its part, Fitch has noted that prime auto loan ABS has been more resilient than initially expected as delinquency and loss levels have been stable to improving, compared with pre-pandemic levels.
A vast majority of the loans in the transaction, 73.9% are financing new vehicles, while 26.0% will pay for used ones, through loans that Eaglemark Savings Bank originated, according to Fitch. That breakdown has been largely consistent with the Harley-Davidson Motorcycle Trust program since 2010, Fitch said. Eaglemark is a subsidiary of Harley-Davidson Credit Corp.
In terms of geographic distribution by state, the pool of loans to be securitized is very diverse. None of the five largest states, by percentage, account for more than 10.7% of the pool. Among the top five states, California accounts for the most, with 10.7%, followed by Texas, with 10.1%, Florida, with 7.6%, then New York, with 4.5% and North Carolina, with 4.0%.
The capital structure also features four tranches, and Fitch expects to assign the notes ‘F1’ and ‘AAA’ ratings.
