American Honda Finance Corp. has filed for its third super prime loan securitization of the year, in a $1.25 billion transaction that could be upsized to $1.5 billion.

The deal comes as the company has experienced growing levels of delinquencies and repossessions.

Honda Auto Receivables 2016-3 Owner Trust is a structure with four fixed-rate senior Class A notes tranches, including a one-year money market series sized at $230 million.

The two-year A-2 bonds ($417 million, potentially $500 million), the four-year A-3 notes ($458 million; $550 million if upsized) and the six-year A-4 notes ($145 million or $175 million) were each granted preliminary triple-A structured finance ratings by Standard & Poor’s and Moody’s Investors Service, according presale reports and a filing with the Securities and Exchange Commission. The A-1 notes have an A-1 rating with S&P and a P-1 with Moody’s.

A $32.05 million subordinate tranche of notes ($38.46 million in an upsizing) are not rated, and are to be retained by the trust.

The notes are backed by approximately $1.28 billion of loans in HAROT 2016-3’s collateral pool.

The notes have a modest 2.75% credit enhancement, in line with several of Honda’s recent securitizations which date back to 1994. According to a presale report, the credit support cushion is as wide as 5.7% in the event of stressed cash-flow scenarios, and provides about 9.5x coverage of high-end expected net loss range of 0.5%-0.6% to the senior notes.

Like its past deals, HAROT pools contain above-average prime borrowers with a weighted average FICO of 763, average APR of 2.17% as well as over a year of seasoning (13-month weighted average).

The average current loan balance increased slightly to $17,795 from the HAROT 2016-2 transaction’s level of $17,248, and the average original term moved to 59.95 months from 59.37 months in May’s HAROT deal. Honda also increased the level of subvened loans to account for dealer incentives (loans with an APR under 4%) to 88.12% of the pool, compared to 87.48% in HAROT 2016-2.

In line with past deals, 92% of the cars financed are new vehicles. Honda autos make up 86.75% of the pool and its sister luxury line Acura comprises the remaining 13.25%.

Honda’s securitizations since 2000 have performed historically well, with only four of the 57 deals since 2000 experiencing cumulative net losses greater than 0.8%. But repossessions and delinquencies are ticking up in the second quarter for Honda, with the volume of repos growing to $32.42 million from $26.78 million in the same period last year resulting in net losses of $15.96 million (only $9.9 million in 2Q 2015).

Total delinquencies and repossessions as a percentage of the receivables outstanding is at 1.12%, compared to only 0.84% in the second quarter of 2015.

For the 12 months prior to March 31, total delinquencies/repos is 1.08% of the pool, compared to 0.75% for the same 2014-2015 period.

As of June 30, Honda’s serviced portfolio of prime loans consisted of contracts totaling $25.7 billion, which is down approximately 7.5% from a year ago as the company shifts more of its managed portfolio toward leasing contracts.

Underwriters on the deal are Citigroup Global Markets, BNP Paribas, SG Americas Securities, Barclays, BNY Mellon Capital Markets, HSBC Securities and Lloyds Securities. The deal is expected to close Aug. 23.

Honda Motor Co. reported U.S. revenue of $3.47 billion for the second quarter, which was down 6.3% from the samer period in 2015 but beat analyst estimates of $3.45 billion in its manufacture of autos, motorcycles and power products. 

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