Harley-Davidson Credit Corp.'s new securitization of motorcycle loans could bring slightly higher credit losses than the previous deal for the captive-finance lender, due to ongoing COVID-19 impact and a slightly weaker pool of borrowers.
In a presale report issued Thursday for the $663.1 million Harley Davidson Motorcycle Trust 2021-A, Moody’s Investors Service projects cumulative net loss expectations at 2.25% – or 0.75% higher than HDMOT 2020-A .
Of course, the borrower base still consists primarily of strong prime borrowers, with weighted average FICO scores of 756, compared to 750 in HDMOT 2020-A. But the average loan-to-value ratio on contracts is now at 101% versus 99% last year.
In addition, subvened loans (low-interest, manufacturer subsidized loans to customers with strong credit profiles) have all but disappeared from the current deal at 0.6% of the asset pool. Subvened loans, which historically carry lower losses than standard indirect loans, made up 12% of the 2020-A pool peaked at 24% in 2016.
The loans in the portfolio (which are originated by Eaglemark Savings Bank, a subsidiary of Harley-Davidson Credit Corp.) have an average remaining balance of $17,877 with an APR of 7.36% (an increase from 7.19% in Harley-Davidson’s previous deal). They were issued with 72-month average original terms, with eight months of seasoning in the pool. S&P notes the share of loans with terms between 73-84 months makes up 35.3% of the pool, of which 70% were for new motorcycles.
The transaction is the third since 2019, when Harley-Davidson returned to the vehicle-loan ABS market after a three-year hiatus.
Moody’s and S&P Global Ratings have each assigned preliminary triple-A ratings to three senior-term term classes which will be paid through loan receivables, as well as proceeds from resales of motorcycles from defaulted loans.
A three-year Class A-2 term tranche and a five-year Class A-3 tranche each are sized at $243 million, while a Class A-4 tranche due September 2028 total $63.58 million. Those notes, along with a short-term tranche of $82 million in one-year notes (rated P-1 by Moody’s, A-1+ by S&P, each benefit from 5% credit enhancement.
S&P has an expected loss range of 1.45%-1.65% on the deal.
JPMorgan is the lead underwriter.
