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Honda marketing $1.1B-$1.35B of prime auto loan ABS

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American Honda Finance Corp.’s first auto-loan securitization of 2018 will be as large as $1.35 billion, according to rating agency presale reports.

The captive finance firm is initially sizing Honda Automobile Receivables 2018-1 Owners Trust (HAROT) the deal at $1.08 billion, but could increase it, depending on demand.

According to a presale reports from Moody's Investors Service and S&P Global Ratings, the 2018-1 transaction will have three classes of triple-A-rated term notes and a Class A-1 money-market tranche to be rated P-1 (Moody's) and A-1+ (S&P) for either its $210.5 million or $263.2 million pool sizes — each 19.5% of the final lower or upper pool size.

If the deal is sized at $1.08 billion pool, the trust will issue $210.5 million of Class A money market notes, a $355.3 million of Class A-2 notes due 2020, $381.6 million of Class A-3 notes maturing in 2022 and $105.3 million of Class A-4 six-year bonds.

The tranches would be similarly proportioned if the deal is upsized.

All of the senior notes will benefit from the same level of credit support (2.75%) that has become standard with recent-vintage American Honda-sponsored prime loan securitizations.

Societe Generale, Citigroup and Deutsche Bank are the lead managers.

Credit characteristics are largely unchanged as well, with the weighted average FICO of 770 matching that of the trust’s 2074 and 2017-2 transactions (and just below the 771 of HAROT 2017-3). The average loan size of $17,571 in the pool also includes a slightly lower average APR (2.07%) than HAROT's most recent transaction (2.11%).

For the second deal in a row, American Honda Finance (AHFC) has pooled loans with more than 80% derived from borrowers from credit profiles scoring in the highest internal ‘A’ credit tier.

The primary risk factor emerging in HAROT transactions is the inclusion of more longer-term loans — those exceeding five years. A 24.6% share of the pool are loans between 61 and 72 months, compared to 20% for the Honda trust’s 2016 transactions and range of 14%-17% for deals prior to 2016.

Over 92% of the loans are for new-car sales on Honda- and Acura-branded vehicles, and seasoned an average of 13 months. Neither presale report broke down the vehicle mix by type or model.

Moody's projected net loss continues in the range of between 0.4%-0.5% from recent transactions. S&P expects lifetime losses of 0.5%-0.6% for the transaction.

The net losses on the $27.8 billion outstanding loans in AHFC’s managed portfolio is at 0.4%, a figure that has been increasing annually since 2013 when it was only 0.18%.

AHFC is rated A2 by Moody’s, following a downgrade of the parent Honda Motor Co. in Japan last fall by Moody’s Tokyo office (Moody’s Japan K.K.). The downgrade was based on a lower profitability outlook in comparison to auto manufacturers with similar ratings such as BMW (A1), Daimler AG (A2) and Nissan Motor Co. (A2).

Despite the downgrade, Honda’s profits have been a roll. Japan’s third-largest automaker announcing expected net profits to reach US$9 billion for its fiscal year ending in March, compared to $5.5 billion in 2016. The company said it expected higher profits from the reduced capital-tax margins in the U.S. and the expense reduction from having mostly completed its recall and replacement of faulty airbags in earlier models.

AFHC last week also issued $1.65 billion in various-term unsecured notes.

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Prime auto ABS American Honda Finance Moody's S&P