Honda shaves exposure to used cars in next captive-finance ABS
Captive finance lenders in recent years have been steadily reliant on used cars for asset-backed collateral.
That’s not the case with American Honda Finance Corp.
For its third securitization of prime vehicle loans in 2019, Honda is further reducing the volume of used-vehicle loans for Honda- and Acura-branded vehicles being added to its periodic ABS investor pools.
According to ratings agency presale reports, Honda may potentially include as little as a 6.45% share of used vehicle loans in an upsized $1.36 billion pool of loans in the Honda Auto Receivables 2019-3 Owner Trust transaction.
That is “at the lower end compared with prior transactions” from the American Honda-sponsored trust, which had a 6.8% share of used cars in the 2019-2 transaction and 10% in its first deal of 2019. The 2018 transactions had used-vehicle concentrations of between 8% and 10.6%.
While the loans in the latest securitization have an averaged seasoning of 13 months, all were issued during a period in which used car sales in the U.S. have risen dramatically. According to online auto industry research site Edmunds, used-car sales are projected to hit a record 41 million in 2019 as “rising vehicle prices and high interest rates are pushing buyers out of the new market,” along with a record number of lease returns building up used-car inventories on dealer lots.
The price gap between new and three-year-old used cars was 56% in 2013, but that jumped to 62% in 2018, according to Edmunds.
The uptick in used-car sales has been reflected among the asset-backed offerings this year from captive finance lenders like GM Financial. GMF had a 14% share of used vehicles in its most recent $973 million securitization that priced Aug. 6, compared to 12% in its first deal of 2019.
Toyota Motor Credit Corp. this month priced a $1.34 billion auto-loan securitization that had its highest proportion (18.97%) of used-car loans since August 2018, while Nissan Motor Acceptance upped its exposure to 7% in a $1.25 billion ABS transaction that closed in July (compared to just 5% last year in another auto-loan securitization).
Ford Motor Credit Auto Owner Trust 2019-B closed in July with a 10.74% share that was a decline from two prior deals, but was still slightly above concentrations in deals dating back to 2017, according to ratings agency reports.
The share of used vehicle loans for Honda’s latest deal could be slightly higher if the lender's trust chooses to limit its offering to $1 billion, in which case a proposed pool will have a 6.78% used-car concentration.
American Honda will market four classes of senior notes with either pool. The three term note classes are Class A-2 ($372 million or $465 million) due April 2022; Class A-3 ($320 million or $399 million) due August 2023; and Class A-4 ($94.64 million or $117.79 million) due July 2025.
A Class A-1 money-market tranche will be sized at either $266 million or $334 million. The A-2 notes carry the top short-term ratings of A-1 by S&P and P-1 by Moody’s.