Loss expectations diminish for subprime auto lender Byrider

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“Buy here, pay here” auto lender Byrider’s improvements in recent asset-backed securitization performance and operational servicing changes are gaining favor with ratings analysts.

The subprime lender’s first 2019 securitization of loans to car buyers with limited or troubled credit history is being marketed with fewer projected losses and credit enhancement protections for investors, compared to the used-car lender’s recent transactions dating back to 2016.

Kroll Bond Rating Agency has lowered its projected base-case loss range to 25.35%-27.35% for the $132 million CarNow Auto Receivables Trust 2019-1, compared to 27.3%-29.3% for Byrider’s last transaction that closed in November 2018.

Kroll has assigned an AA rating to $87.6 million to the senior Class A notes in the transaction, even though credit enhancement levels are lower at 47.5% and the collateral has some riskier elements for investors: loan balances ($13,211) a borrower loan-to-value ratios (177.36%) are at peak levels for a Byrider securitization.

But Carmel, Ind.-based Byrider – which operates as CarNow Acceptance Co. – has steadied its previous management instability in the past year across its 149-store chain of company-owned and franchisee locations.

Since 2016 the company has been adopting and refining new scoring models for underwriting borrowers. And although it targets the lower-end credit-tier borrowers with FICOs under 620, the company has stepped up underwriting standards and servicing - which includes budget advising to better determine a borrower’s vehicle needs, and discounted maintenance offerings.

The loss performance on 2017 and 2018 CarNow vintage ABS deals has improved from 2015-2016 securitizations, Kroll reported.

The transaction includes a $30.1 million prefunding feature in which the trust can add more loans to the pool after the expected Aug. 13 closing. Most of the loans to be acquired with the prefunding account are clean-up collateral from the recently called CarNow 2016-1 transaction, according to Kroll.

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