American Honda Finance Corp. is launching its fourth prime auto securitization this year.
Sized at $917 million, Honda Auto Receivables 2015-4 is backed by prime collateral.
Both Moody's Investors Service and Standard & Poor's assigned preliminary triple-A ratings to three tranches of class A notes issued by Honda Auto Receivables 2015-4 Owner Trust: a $345-million A-2 tranche, $255-million A-3, and $75-millon A-4.
Neither rated the $219-million A-1 tranche or the $22.93 million equity piece.
The senior notes benefit from 2.75% credit enhancement. The A-2 notes are due June 23, 2018; the A-3 notes are due September 23, 2019; and the A-4 are due January 21, 2022.
According to a pre-sale from Standard & Poor's, seven arrangers are running the deal: Citigroup Global Markets, Deutsche Bank Securities, SMBC Nikko Securities America, JPMorgan Securities, Lloyds Securities, RBC Capital Markets, and TD Securities.
Not rated by either Moody's or S&P, the A-1 slice is senior to the others in the payment of principal.
Honda typically keeps this piece, the money-market tranche, as the auto lender doesn’t need the short-term funding it provides thanks to a commercial paper program.
The current loan balance is around $18,260, with 16.75% of the loans with longer maturities of 61-72 months. The weighted average FICO score of borrowers in the securitized pool is 761. Roughly 93% of the vehicles being funded are new.
S&P said that Honda’s asset-backeds have a strong track record, with cumulative net losses from 2000-2012 ranging from 0.24% to 1.24%.
HAROT 2015-3 looks similar to the last three transactions to be issued from the trust this year. The sponsor continues to increase the number of longer term loans in the pool; 16.8% of the pool backing HAROT 2015-3 are loans with terms between 61 to 72 months, a slight increase from 16.3% in the HAROT 2015-3 pool.
Loans that extend payments beyond the five-year mark are typically used by borrowers looking to purchase a more expensive car then they could otherwise afford. These loans are considered riskier because the borrower spends a longer time "underwater" on the loan, owing more than the vehicle is worth. This exposes investors to higher loss severity if the obligor defaults.
Nonetheless, the loans backing Honda's transactions so far this year benefit from low annual percentage rates. HAROT 2015-3 has a WA APR of 2.17%; among the lowest rates in prime pools securitized so far this year. The sponsor originated loans under its low-rate incentive programs, which are generally limited to the higher quality borrowers who purchase new vehicles.
"The low interest rates tend to attract high quality borrowers who may otherwise purchase a vehicle with cash," according to Moody's. "The presence of these loans should have a positive impact on overall pool performance".
