Lower delinquencies buoy weaker metrics in Santander's next $1.1B pool

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Santander Consumer USA is sponsoring its next subprime auto-loan securitization with slightly lower levels of credit enhancement than its prior deal, despite a collateral pool with a weaker FICO profile and lighter seasoning.

The $1.1 billion Santander Drive Auto Receivables Trust (SDART) 2019-2 will pool 57,224 contracts from borrowers with a weighted average FICO of 600, down from 615 from the $942 million SDART 2019-1 deal issued in February.

The weighted average seasoning is only two months – the lowest of any SDART deal since 2015 – and the amount of extended term loans over 60 months remains “elevated” at 93.4%, according to Fitch.

But CE levels of the notes is 52.2%, a slight dip from the 52.75% level of the 2019-1 transaction, according to a presale report from Fitch Ratings. Fitch estimates forward-looking losses unchanged at 17% from its projection for the prior SDART transaction.

Fitch notes that 30-plus day delinquencies are shrinking, which Santander USA’s first-quarter financial reports show were down to 12.6% from 17% in the first three months of 2018. Cumulative net losses for all outstanding SDART transactions are extrapolating to 12%-15%, according to Fitch.

Fitch says the pool collateral is “general consistent” quality-wise with Santander’s securitizations from 2017-2018, with a WA loan-to-value ratio of 106.7% and a weighted average APR of 15.5%.

A portion of the collateral was though Santander’s captive-finance origination channel (Chrysler Capital) for FCA USA/Fiat Chrysler. Dodge-branded vehicles make up 20.9% of the pool collateral and Jeeps 13.99%, with light-duty trucks taking of 60.4% of the pool. “The jump in light trucks in (SDART) 2019-2 and 2019-1 is a notable shift driven by recent Chrysler-brand sales patterns,” Fitch’s report noted.

Fitch and Moody’s Investors Service have issued initial triple-A ratings for two tranches of Class A notes. The $260 billion in Class A-2 notes due July 2022 will be divided between fixed- and floating-rate bonds while the Class A-3 notes totaling $143.8 million are due May 2023.

A $165.3 million Class A-1 money-market tranche has an early F1+ rating from Fitch and P-1 from Moody’s.

Four subordinate note classes include the $128.3 million in Class B notes (rated AA by Fitch, Aa1 by Moody’s), the $160.9 million in Class C notes (rated A/Aa2), the $144.6 million in Class D notes (BBB/Baa1) and $99.1 million in Class E notes (BB by Fitch; Moody’s did not publish ratings for the E notes).

In an earnings release on April 30, Santander USA reported retail auto loan originations grew 14% in the first quarter year-over-year at $2.62 billion up from $2.29 billion. (Those loans exclude originations through its partnership with Fiat Chrysler, which totaled $2.44 billion in the quarter). The growth in originations was the fifth consecutive quarter of lending growth for Santander USA.

The new transactions adds to $2.9 billion in loan ABS transactions sponsored by the lender this year.

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