Honda Auto Receivables 2023-2 Owner Trust is preparing a $1.3 billion securitization of revenues from prime auto loans, in a deal that consists of loans with longer original terms, higher principal balances and a higher concentration of prime obligors than the program's previous transaction.
Known as HAROT 2023-2, the transaction's collateral pool features some 39.09% of loans with original terms of 61-72 months, up from 35.46% in HAROT 2023-1, according to S&P Global Ratings, which will assign ratings to the notes. In another change from HAROT 2023-1, the loans had an average principal balance of $23,386, up from $22,280.
While longer loan terms might expose some auto ABS deals to duration risk and the risk of price drops—adding to recovery risks, HAROT 2023-2 also has a slightly higher concentration of credit grade-A obligors, 77.64%, up from 76.45%, S&P said.
While the presence of more highly rated obligors is a potential credit positive, S&P also noted that the deal from about a year ago, the HAROT 2022-2, actually had a higher concentration of credit grade-A obligors, 78.30%, S&P said.
There are about 57,707 receivables in the trust, according to S&P.
As for structural changes, S&P noted that the yield supplement account required rate increased to 8.05% from 7.85%, because of an expected higher expected cost of debt.
Barclays Capital is the lead underwriter on the deal, which is slated to close on May 30, S&P said. J.P. Morgan Securities, TD Securities and Wells Fargo Securities join the bank as joint book runners, according to a Securities and Exchange Commission filing.
American Honda Finance Corp., which gets an 'A-' corporate rating with a stable outlook from S&P.
S&P points out that the notes have approximately 7.4% credit support for classes A-1, A-2, A-3 and A-4.
"This credit support level provides coverage of at least 5.0x of our expected cumulative net loss (ECNL) of 0.55% for the class A notes," S&P said in a pre-sale report.
S&P expects to assign ratings of 'A-1+' to the A-1 notes; and 'AAA' to the A-2 through A-4 classes of notes, all of which are fixed. Legal final maturity dates range from June 17, 2024 through Sept. 17, 2029, S&P said.
