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Higher loss expectations for World Omni's next prime auto ABS

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Ratings agencies are projecting slightly higher losses for prime auto lender World Omni Financial Corp.’s third securitization of the year, despite an improvement in credit metrics.

Both S&P Global Ratings and Fitch Ratings have elevated the loss expectations — slightly — for the $799.9 million World Omni Auto Receivables Trust (WOART) 2018-C compared with the regional Toyota captive finance company’s previous ABS issuance in March. S&P is projecting losses over the life of the deal to be in the range of 1.2%-1.4%; that's up from 1.15%-1.35%. Fitch, meanwhile, expects losses on WOART 2018-B to reach 1.55%, in its base-case scenario.

That's despite the fact that the new transaction features a higher weighted average FICO (753) than any prior WOART transaction. It is also the third consecutive deal to exclude non-Toyota branded vehicle loans that have had higher historically worse performance in World Omni ABS portfolios.

The new deal also has a higher average APRs (3.58%) and the 32,050 lightly seasoned loans that also have a higher-than-average principal balance of $27,520. The higher APRs aren’t necessarily an indicator of worsening credit, but could reflect a decrease in the use of incentive programs to subsidize lower rates for well-qualified customers, according to Fitch.

The average seasoning of 2.9 months is down from 5.2 months in WOART 2018-B, but that's because the prior deal included “cleanup” collateral from older WOART transactions that had been called. The new transaction has no called collateral from prior transactions.

Both rating agencies note that delinquencies (1.71% as of March 31) and annualized net losses (1.23%) are elevated in World Omni's $10.2 billion managed portfolio. However, while WOART transactions from 2016 are tracking higher losses as well, 2017 transaction are “currently performing slightly better,” according to S&P, reflective of higher credit quality.

The new transaction consists of four senior classes of notes. A money-market tranche totaling $151 million carries a preliminary A-1 rating from S&P and F-1 by Fitch and three term tranches rated triple-A: $292 million in four-year Class A2 notes that will be divided between floating- and fixed-rate bonds; a $262 million Class A-3 tranche due 2023; and $71.5 million in Class A-4 notes due 2024.

As in WOART’s previous transactions this year, the deal could be upsized at closing — potentially to $1.1 billion.

The portfolio, similar to WOART’s previous deals, are top-heavy in new vehicles taking up 93.9% of the collateral pool. Nearly 63% of the vehicles are light-duty and large trucks, SUVs and crossover models.

World Omni, of Deerfield, Fla., is a subsidiary of JM Family Enterprises Inc., which as parent to U.S. Southeast Toyota Distributors has been the exclusive service, financing and distributor of Toyota cars and light-duty trucks, parts and accessories since 1981 in Florida, Alabama, South Carolina, North Carolina and Georgia. The company has been securitizing loan portfolios for 27 years.

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