American Honda Finance Corp. has launched its first captive-finance auto securitization of the year in a $1.03 billion notes issuance through Honda Auto Receivables 2016-1 Owner Trust.
The notes are backed by Honda’s typically strong collateral in prime loans with high-quality credit borrowers (average FICO of 761) and lengthy seasoning (13.61 months), and supported by a hard credit enhancement of 2.75% (including a 0.25% reserve funded at closing).
But the new securitization continues a recent trend in Honda ABS issuance that includes more long-term loans in excess of 60 months as AHFC increases its concentration of high-end customers buying higher-ticket vehicles.
Fitch Ratings on Thursday issued expected ‘AAA’ ratings on three tranches of notes to be issued by the trust, as well as a short-term ‘F1’ rating on a Class A-1 one-year money-market slice of $265.7 million. The capital stack also includes a Class A-2 $312 million notes tranche due June 2018, a Class A-3 $332 million notes tranche due December 2019 and a $90.3 million, Class A-4 tranche due April 2022.
A $25.65 million issuance of unrated certificates will be used to back the reserve funding.
The securitization is backed by a collection of 57,830 loans of primarily new Honda and Acura vehicles (93.69% of the pool). The balance of the loans is $17,735, in line with recent Honda ABS structures and well below that of peers’ recent loan securitizations such as Ford Credit Auto Owner Trust 2016-A ($24,982) and Nissan Auto Receivables Trust 2016-A ($20,785) – both of whom market their loans to investors after much shorter periods of seasoning of 7.1 and 10.2 months, respectively.
AFHC’s 2016-1 continues Honda’s trend of also backing securitizations with a higher percentage of shorter-term loans than peers. For Honda, 80.11% of loans are originated under 60 months compared to only 42.95% for Ford and 40.85% for Nissan in those manufacturers’ first 2016 securitizations of captive finance loans.
But Honda has ebbed toward including more loans in excess of five years in the collateral pool than in its preceding securitizations. Since 2012, in a span that includes 15 prior ABS issues from AFHC, the percentage of 60-plus month loans has grown from 12.47% of the pie to 19.89%.
Fitch points out that the growing slice of loans beyond five years are primarily underwritten to AFHC’s “Tier A” and “Tier B” customers who are purchasing higher-priced vehicles. “Indeed, the concentration of Tier A and Tier B borrowers is up notably from recent transactions too,” the report stated.
In AFHC’s new securitization, the ABS’ cash-flow distribution is a sequential-pay structure, and the yield supplement account included provides an excess spread of 2.35%, consistent with the last two securitizations of 2015.
Honda’s hard CE of 2.75% is below that of Ford (5.5%) and Nissan (4.25%), and unchanged from the 15 previous ABS transactions since 2012.
JPMorgan is the lead underwriter.