Ally Bank is marketing $1.1 billion in bonds in its third prime auto loan securitization of 2018.
While the credit quality of the collateral for Ally Auto Receivables Trust (AART) 2018-3 collateral pool is largely consistent with that of previous deals, rating agencies are concerned about the continued deterioration of a few metrics. Both Moody’s Investors Service and S&P Global Ratings called attention to the collection of loans with extended terms of 73-75 months, which has been rising since 2015. These loans generally have weaker ABS performance than loans with 60-month maturities.
In the latest transaction, however, the share of 73- to 75-month loans has breached 13%, after ranging from between 10%-12% from five previous AART issues since 2016.
The pool’s loans have an average balance of $15,572 with a weighted average APR of 6.1%. The APR is a high-water mark for the recent AART transactions, reflective of the higher interest rates for consumers with a declining weighted-average FICO average (736) and rising 66.53 weighted average original month terms (another peak level) from prior AART deals.
Ally is also including slightly more used cars in the mix (31% from 30.02% in AART 2018-2). While this comes after the bank reported a record $4.8 billion in used-car loan originations in the second quarter, up 14% from the first quarter, the weighted average seasoning of the loans is 14.21 months (up from 13.6 months).
Loan-to-value ratios also increased to 94.77% from 94%.
Another negative is a further decline in the percentage of loans that were originated with support from manufacturer incentives, or subvened loans. This has eroded to an all-time shelf low of 2% from 2.1% from the $750 million AART asset-backed deal in May.
Ally’s share of subvened loans has been “dramatically” curtailed since Ally’s loss of exclusive GM-sponsored incentive programs that allow dealers to offer below-market rates to higher-credit-score buyers, Moody’s wrote. Subvened loans made up over 90% of Ally loan pools in 2009, Moody’s stated, and in practice “have historically experienced lower losses than non-subvened loans.
GM-branded vehicles also continue to decline as a share of the pool mix as captive-finance business with GM franchise dealers continues to erode. They are just 40.1% of the pool, down from 41.7% from the prior deal and ratios that were in the 60%-70% range from 2014-2016, according to S&P. Ally remains in the incentive program for Fiat Chrysler, and is a preferred lender for Mitsubishi Motors Credit of America.
The AART 2018-3 capital stack features three term-note tranches with preliminary triple-A ratings from Moody’s and S&P. The three-year Class A-2 notes due 2021 and Class A-3 notes due 2023 each have preliminary balances of $349 million (up to $50 million in A-2 or A-3 notes could shift between the two tranches at closing). An A-4 bond class with a 2023 maturity is sized at $75.4 million.
Ally is also including a $283 million money-market tranche rated A-1 by S&P and P-1 by Moody’s, and three subordinate tranches totaling $52 million that will either be retained or privately placed, according to S&P.
Total credit enhancement of 5.85% on the senior notes is unchanged from recent AART transactions.
Barclays, Bank of America Merrill Lynch, J.P. Morgan and Pierce, Fenner & Smith are the underwriters on the deal.
