More long-term loans, less seasoning in GM's next prime auto ABS
GM Financial's next auto loan securitization features higher exposure to longer-term contracts with less seasoning.
Fitch Ratings on Thursday assigned a loss proxy of 1.5% on the $1.25 billion GM Financial Consumer Automobile Receivables (GMCAR) Trust 2018-3, a second consecutive deal in which Fitch raised the level of potential losses from the prior issuance from the GMCAR trust. The 2018-3 loss proxy is an increase from 1.45% on GMF’s previous offering in April and 1.4% in the first platform issuance in January.
Fitch cited the shift on the percentage of 60-plus month loans in the pool that “rose markedly” to 73.2% of the collateral balance of $1.36 billion from 68.7% in the prior deal and 56.6% in GMCAR’s first 2018 issuance in January.
These longer-term loans are associated with increased concentrations of higher-priced trucks, SUVs and crossovers, which have grown to an 84.7% collateral share from 78.2% in GMF's debut GMCAR issuance in 2017, according to Fitch. Borrowers typically stretch contracts out over longer terms in order to lower their monthly payments, but this increases the risk to investors, since the loan is "underwater," with the borrower owing than the residual value of the vehicle, for longer.
But that's not the only risk: Gas-guzzling trucks and SUVs could also be worth less, in the event of a default and repossession, should fuel prices rise appreciably.
Fitch cited these factors, along with other “slight negative shifts in credit quality” for the boost in the loss proxy it uses in modeling the portfolio’s performance and ratings.
The loss proxy is above what other GMCAR transactions are projecting, but Fitch stated in a presale report the 1.5% modeled loss proxy is “appropriately conservative” given GMF’s limited prime-loan origination history (since 2014) and the short-term ABS performance data from its five outstanding deals.
S&P Global Ratings, in its presale report, maintains an expected loss range of 1.05%-1.25% in GMCAR 2018-3, unchanged from the prior deal.
The new transaction pools 44,700 loans with a principal balance of $1.36 billion, or $30,378 per account. The loans will back seven classes of notes, including three triple-A rated bond tranches: a $420 million, three-year Class A-2 tranche of fixed- and floating-rate notes; five-year Class A-3 notes totaling $439 million and an $89.6 million, six-year tranche of Class A-4 notes.
A $247 million Class A-1 money-market tranche has preliminary A-1 ratings from Fitch and A-1+ from S&P. All of the senior notes benefit from 6.1% credit enhancement, a consistent level across all GMCAR transactions to date.
Another $55.3 million in subordinate notes are also part of the capital stack.
There are additional credit challenges. The weighted average seasoning of the collateral is just 5.9 months, compared to 6.4 in 2018-2 and as high as 10.7 months in GMCAR 2017-2. The 83.1% share of new-car loans in the pool is down from 87.4% in the prior GMCAR issuance. The weighted average FICO is down slightly, as well, although at 770 is well above the floor of prime auto-loan ABS pools.
The weighted average loan-to-value ratio is 95%, and the weighted average APR is 3.35%. The ratings agencies noted the decrease in subvened contracts decreased to 6.94% from 8.65% in the prior transaction’s pool, a level that will continue to "evolve" and vary as GM Financial continues to build out its captive-finance network of GM-franchise dealers. (Despite the lack of manufacturer subsidies, former GM captive-finance provider Ally Bank still garners 30% of its auto-loan originations through legacy GM dealer relationships).
Chevrolet remains the most prevalent brand in the new pool, but its 50.06% share is the lowest among the GMCAR portfolios as the share of passenger sedans and coupes (15.3% of the collateral balance) continues to decline. GMC, meanwhile, is up to 24.9%, reflecting the growing share of SUVs (32.8%), crossovers (20.6%) and light-duty trucks (31.3%) in GMCAR pools.
As of March 31, GM Financial’s managed loan portfolio totaling $28.8 billion across 1.4 million loans – a growth of 18% since the first quarter of 2017 and 58% since year end 2015. (That includes subprime and near-prime loans that are securitized under GMF’s AmeriCredit Automobile Receivables Trust platform).
Total delinquencies are up to 5.7% from 4.9% a year ago. But annualized net losses as a percentage of average principal balance is an annualized 2% as of March 31, compared to 2.3% a year ago.
Bookrunners on the deal are JPMorgan, Lloyds, Mizuho and RBC.