Lendbuzz Funding is preparing to issue about $187.9 million in asset-backed securities, the third term securitization secured by vehicle retail installment sale contracts, from a company that is experiencing strong growth and raising capital from several channels.
Founded by migrant graduate school students who felt shut out of the consumer credit markets, Lendbuzz started making loans in 2015 to customers who have difficulty securing financing from traditional sources, like banks, credit unions and captive auto finance companies, according to Kroll Bond Rating Agency.
Goldman Sachs and J.P. Morgan Securities are the lead managers on the transaction, which will issue three classes of notes, according to the Asset Securitization Report's deal database. Illustrating the target customers' limited access to the credit markets, less than half of the underlying loans, 49.69%, were taken out by borrowers with a FICO score. Other than that the largest percentage of borrowers with a FICO score, 14.5%, had one of 660 or lower.
A large majority of the loans, 89.26% financed the purchase of used vehicles, and borrowers had a weighted average loan-to-value ratio of 95.6%.
KBRA noted several key changes to the transaction, LBZZ 2023-1 over the LBZZ 2022-1, particularly in its structure and collateral pool. For one, LBZZ 2023-1 has a reduced recovery rate assumption on the current transaction at 50%, compared with 56.7% on the LBZZ 2022-1, given deteriorating recovery trends and lower used vehicle values, according to KBRA. Borrowers have a higher weighted average (WA) FICO score of 693 at origination, compared with 678, and had a higher average balance of $28,278, over the $24,617 in the 2022-1 pool.
Lendbuzz uses a proprietary Artificial Intelligence Risk Analysis (AIRA) credit scoring system, and this time around there is a higher concentration of loans in the highest credit-scoring tier, 700+, according to KBRA.
Also, at a time when layoffs are picking up in the financial services industry, such as the mortgage lending market, Lendbuzz added 80 new employees from Q1 through Q3 2022. Originations increased 59% on a year-over-year basis, according to KBRA.
Credit enhancement consists of overcollateralization, subordination except for the class B notes, a reserve account funded at closing and excess spread.
KBRA expects to assign ratings of 'K1+' to the class A-1 notes; 'A+' to the class A-2 notes; and 'BBB+' to the class B notes.
Moody's expects to rate the A-2 notes 'A3' and the class B notes 'Baa3'.
The notes have a legal final maturities ranging from March 2024 to August 2029.
