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Honda weighs $1B-$1.25B sizing in fourth auto ABS of 2017

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American Honda Finance Corp. will be gauging market demand before it sizes its fourth securitization of prime-quality new- and used-auto loans for 2017, according to presale reports.

Honda Auto Receivables 2017-4 Owner Trust (HAROT) will pool either $1 billion or $1.25 billion; in either case the trust will issue senior tranches of notes, as is the norm for the platform.

The $1 billion pool would consist of 58,607 loans, all originated by the captive finance company. In this case, there would be a $206 million money market tranche and three triple-A rated terms notes: a $300 million Class A-2 series due January 2020, a $384 million Class A-3 tranche maturing in November 2021 and $110 million in Class A-4 notes maturing in March 2024.

If Honda opts to upsize the deal at closing, a $1.25 billion pool of 73,341 loans will feature a $257.5 million one-year tranche, a $375 million two-year series (Class A-2), $480 million in Class A-3 four-year notes and $137.5 million in Class A-4 bonds due 2024.

The notes’ preliminary ratings are through Moody’s Investors Service and Fitch Ratings, in pre-sale reports published Thursday.

All of the senior notes are supported by 2.75% credit enhancement, consisting of 2.5% subordination and a 0.25% reserve account – a standard metric in American Honda securitizations of Honda and Acura vehicles since 2014, according to Fitch.

Each pool has nearly identical average FICO scores (769 for the $1 billion pool, 770 for the $1.25 billion) and weight average APR (2.13% and 2.11%, respectively).

A yield supplement account builds an excess spread of 2.2% to increase the weighted average APR in each deal, creating an effective rate of 5.4% for each pool, the highest of any recent HAROT transaction. The excess spread is consistent with Honda’s prior deal, but lower than the 2.3% from the trust’s second deal of 2017.

The average principal balance is $17,501 for the $1 billion pool and $17,481 in the $1.25 billion pool.

The 65.5% top model concentration of the CRV cross-over plus the Accord and Civic sedans follows the patterns of recent Honda deals, and also mirrors Honda sales patterns. Both pools consist of more than 91% new vehicles, with an average seasoning of 13 months.

Honda’s more conservative underwriting limits the amount of extended term loans (over 60 months) to just short of 24% of each pool’s collateral. That is slightly lower than the 24.7% level of HAROT 2017-3 and 24.9% of HAROT 2017-2.

Moody’s noted, however, the percentage of extended length loans – which Honda targets mostly at its Tier A and B customers purchasing higher-priced vehicles – has elevated sharply this year from the 20% levels of 2016 HAROT transactions, and 14-17% in deals prior to 2016.

Both Moody’s and Fitch maintain a low 0.5% cumulative net loss on each pool, similar to prior Honda securitizations.

American Honda Finance Co.’s managed portfolio totaled $27 billion as of Sept. 30, up from $25.9 billion a year earlier. Delinquencies and repossessions are creeping up slightly for Honda to 1.26% from 1.2% a year ago, and from a range of 0.71% and 0.76% between fiscal years 2012-2016.

Net losses had grown from 0.35% from 0.29% from a year ago.

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Prime auto ABS Moody's Fitch American Honda Finance