J.D. Byrider plans to issue $131 million of securities backed by subprime auto loans via its CarNow Auto Receivables Trust.

Kroll Bond Rating Agency will assign an ‘AA-‘ rating to the three senior tranches of notes issued from CNART 2015-1; that is one notch lower than comparable tranches of the sponsor’s CNART 2014-1 transaction. The lower rating comes despite higher credit support on the two most senior classes of notes.

On offer are $72.6 million of ‘AA-‘ rated class A notes; $22.6 million of ‘A-‘ rated class B notes; $19.9 million of ‘BBB-’ class C notes; $7.4 million of ‘BB’ rated class D notes and $8.5 million of ‘B’ rated class E notes.

Compared with the previous transaction, credit support on the class A notes increased to 55% from 53.25% and on the class B notes it increased to 40.50% from 39.99%.

However credit support on the more subordinate tranches has decreased. The class C notes benefit from credit support 27.75%  down from 27.99%; and support for the class D notes decreased to 23% from 23.74%; while support for the class E notes decreased to 17.5% from 18.74%.

J.D. Byrider, which has tapped the securitization market four times previously, most recently in 2014, specializes in deep subprime lending.  Borrowers have low FICOs that range between 525 and 550 and typically have bad credit history or no credit at all.

In its latest deal, 23.16% of borrowers in the pool have no FICO score.  The sponsor scores these obligors with its in house credit-scoring model.  Most of the loans (89%) either have bi-weekly or semi-monthly payment plans, structured to fit the customer’s personal budget; 11% make monthly payments on their loans.  Byrider limits loan terms to 56 months.

Like its previous tranasction, this one includes loans that have had down payments financed via “DIPs” or deferred installment payments.  Kroll explained in the presale report that this allows a portion of the down payment to be spread out over four payments after the sale, usually bi-weekly or semi-monthly. DIP payments are made prior to the first principal and interest payment date, over a period of no longer than 65 days. During the DIP period, accrued interest is capitalized. If the DIP payments are not satisfied, J.D. Byrider reverses the transaction and treats it as a return.

“This component of the deal stresses obligors’ financial commitments to the program, since DIP payments are higher than normal principal and interest payments", according to the presale report.

Unlike the CNART 2014-1 transaction, CNART 2015-1 is not fully ramped; the manager can purchase up to 12.8% of eligible collateral during a three-month prefunding period. This can expose the pool to the risk that the sponsor may purchase lower quality collateral. However, in this case, the prefunded collateral has already been originated and is currently in the DIP period.   

The average current balance of loans in the 2015-1 pool has increased by $2,441 (27%) to $11,618 from $9,177 average balance in the 2014-1 pool.


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