Lower loss expectations allow UACC to cut credit enhancement
Rating agencies are forecasting lower losses over the life United Auto Credit Corp's next subprime auto loan securitization, and that's allowing the lender to offer fewer investors protections on the $186 million transaction.
“[W]e believe that the credit quality of the collateral in the series 2018-2 pool is comparable to the UACST 2018-1 pool,” S&P analysts stated in a presale report issued Thursday. “In addition, we have observed improved performance in the company's managed portfolio and in its origination static pools.”
DBRS also forecast a lower cumulative losses of 19.4% in its base-case scenario, compared with 20.1% in the $171.7 million transaction completed in January.
UACC 's most recent securitization to be fully redeemed, the UACST 2016-1 deal, sustained losses of 19.2%; significantly less than the 22.65% loss-level for its 2015-1 transaction and 20.64% for its 2014-1 deal.
Improved performance means that UACC is paying far less, in terms of credit enhancement, for the same credit ratings. The senior tranche of Class A notes is provisionally rated triple-A despite having just 55.5% credit enhancement, 4 percentage points less than the comparable tranche of the prior deal.
The initial receivables balance in the 2018-2 pool is $142.9 million, among the highest for any United Auto Credit deal since 2015. The transaction also includes a prefunding account sized at 25% of the total, the remaining $50 million of receivables in the $200 million pool will be acquired by the end of this year.
The 16,703 loans in the initial pool have an average balance of $8,553 and weighted average mileage of 109,077 – lower than seven prior UACST transactions. The weighted average APR is 23.05% and the average loan-to-value ratio is 111.29%.
The loans are more seasoned (5.5 months) than in prior deals, with average remaining terms of 39.4 months.
The weighted average FICO of 579 is in line with the two prior deals, but is historically high among UATC’s previous securitizations. The figure has improved by lowering the total of loans to borrowers with sub-600 scores to 50.49%, compared to as high as 56% two years ago and 75% in 2013.
UACC’s managed portfolio has grown to $458.6 million, the highest level since its peak $739.7 million portfolio in 2008 on the eve of the financial crisis. Delinquencies have improved over recent years, and were at just 6.07% through May (8.62% in the comparable 2017 period).