American Honda and Ally Financial each filed for new securitization offerings Wednesday, with Honda launching its second ABS of 2016 with a $1.28 billion portfolio comprised of its typical low-interest, high credit-quality loans.
Ally Financial is selling $516.2 million in notes backed by new consumer loans of primarily new GM and Chrysler brand vehicles for which Ally provides non-exclusive finance support services.
For America Honda Finance, Honda Auto Receivables 2016-2 Owners Trust (HAROT) is keeping to Honda’s strategy of keeping iskier six-year loan originations to a minimum. But in its latest securitization prospectus filed Wednesday, the captive finance arm for U.S. Honda and Acura model sales has again maintained what is – for American Honda, anyway – a historically high number of 61-month plus consumer loans in its collateral pool.
The concentration of longer-term loans was up slightly to 19.9% of the $1.28 billion That is on par with the 19.8% of longer-term loans in Honda’s first securitization this year issued in February, but up “notably” since the ABS pools of 2014, according to a Fitch Ratings presale report. Only 16.8% of loans were in excess of 60-month financing in those vintages.
“However, longer-term loan concentrations for HAROT securitizations are still notably lower than those of industry peers,” the report noted. “In addition, consistent with prior transactions, longer-term loans are primarily offered to credit-tier A and B borrowers.”
By comparison, recent owner trust securitizations from Ford (54.15%) and Nissan (60.67%) where a majority of loans have terms of more than five years.
Honda’s long-term conservative origination strategy has also kept the company’s credit enhancement requirements low (2.75%) and allowed it to issue all of its bonds in AAA-rated Class A notes structure that are split among one-, two-, four- and six-year term maturities. The capital structure is led by a $364 million money-market tranche of Class A-1 notes that carry a preliminary F1 rating (equivalent to ‘AAA’), followed by a $350 million Class A-2 notes issue maturing in 2018. The largest tranche is a $417 million, four-year Class A-3 slice.
The collateral pool consists of 74,288 loans, which is the largest number within a HAROT proposal since its 2015-2 issue a year ago. The loans carry an average balance of $17,258, a 2.18% APR and average seasoning of 13.28 months.
The portfolio mirrors many of the structural features of most recent HAROT transactions, although the initial excess spread in 2016-2 is expected to be 2.26% per annum, down slightly from 2.35% in 2016-1 due to the inclusion of a yield-supplement account that increases the effective weighted-average APR in the pool.
Loans for the Honda Accord and Honda Civic models make up the largest portion of the pool at 46.2%, slightly higher than 2016-1 when the models comprised 45.3% of the collateral. The Honda CRV is third with 14.34% of the pool. All three models have represented the top concentrations in the HAROT pools since the beginning of 2014, according to Fitch.
Ally Auto Receivables Trust (AART) 2016-3 Is a seven-tranche notes structure that includes four Class A offerings: a $135 million short-term tranche with a preliminary ‘A-1’ rating from S&P; a Class A-2 and A-3 tranche each sized at $153 million and carrying an early ‘AAA’ rating; and a $45.14 million Class A-4 issue of notes also rated ‘AAA’.
JPMorgan is the lead underwriter.
The portfolio is similar to much of AART’s previous 2016-2 issue, although the trust this time is offering a provision for substituting receivables up to 10% of the initial pool balance should a breach of a representation or warranty that materially affects any security holder’s interest. Ally has also reduced the number of subvened loans in the portfolio to 9.2% from 2016-2’s 20.3% level. The lack of support for dealer APR discounts has increased the average weighted APR to 5.12% from 4.36% in the previous transaction.
Loans originated for between 61 and 75 months comprise 68.7% of the pool, for customers with a weighted average FICO of 740.