Lithia Financial Corp. is sponsoring a $500 million securitization of prime retail installment loan contracts that its subsidiary Driveway Finance had originated to finance the purchase of a pool of new and used cars.
The deal is Driveway Finance's fifth 144a auto loan asset-backed securitization, and it features a buildup of credit enhancement as the pool amortizes. That feature is one of the transaction's strengths, according to a pre-sale report from Moody's Investors Service. To that point, hard credit enhancement consists of a combination of overcollateralization, which starts at 11.0%, of the initial adjusted pool balance, building up to 12.7% of the initial adjusted pool balance.
There is also a non-declining reserve account amounting to 1.00% of the initial adjusted pool balance. Vervent serves as a backup servicer on the deal, and had plenty of experience doing that, since it serves the same role on a variety of other auto transactions.
A reserve fund, subordination and excess spread also provide credit enhancement on the deal. Other forms of credit enhancement, and a cash reserve also provides liquidity to the deal.
J.P. Morgan Securities, Mizuho Securities, Citigroup Global Markets and Truist Securities are lead underwriters on the deal, according to ratings analysts from Moody's.
Drilling down further through the collateral pool, LADAR consists of new and used cars, sport utility vehicles, minivans and light duty trucks, ratings analysts said. On average, the loans amount to $29,844, and on a weighted average (WA) basis the borrowers have a FICO score of 739, which is the highest of prior LADAR transactions, the rating agency said. The receivables have a WA APR of 8.48%, which is higher than LADAR 2023-2 and LADAR 2023-1. The loans have an original term of 73 months, with a remaining term of 69 months.
LADAR 2023-3's notes, which have legal final maturities ranging from Aug. 15, 2024 through Dec. 16, 2030, will repay investors through a senior-subordinate structure, Moody's said.
Moody's expects to assign 'P-1' to the A-1 notes; 'Aaa' to the A-2 through A-4 notes; 'Aa1' to the class B notes; 'A1' to the class C notes; and 'Baa2' to the class D notes.
