Global Lending Services is prepping a $200 million offering of bonds backed by subprime auto loans.

GLS Auto Receivables Trust 2016-1 is the sponsor’s first term securitization of 2016 and third overall. Its inaugural deal, completed in 2014, was unrated; the second deal, rated by KBRA, was completed in 2015.

The latest offering consists of five tranche of notes, compared with just three for the 2015 deal. KBRA has assigned a preliminary ‘AA’ rating to the senior class with a final maturity of October 2020 and initial hard credit enhancement of 44%. It also assigned ratings ranging from ‘A’ to ‘BB’ to three subordinate tranches.

The most junior tranche is unrated.

Among other changes in structure, GCAR 2016-1 is missing an investor protection in the 2015 deal, a cumulative net loss trigger. However, the latest deal is structured with higher initial (8.5% vs 8%and target (12.5% vs 8%) overcollateralization levels, providing additional cushion against defaults.

Loans used as collateral have a lower weighted average loan-to-value (LTV) ratio (549 vs 555), and a lower weighted average coupon (18.59% vs 18.72%) compared to the prior transactions. 

KBRA expects cumulative net losses to be in the range of 18.5% to 20.5% in its base case scenario. That’s less than the 20.25% to 22.25% range for the previous deal.

Global Lending Services has only originated loans since August 2012 and thus has limited performance data. However, it has an experienced management team.  Chief executive Steve Thibodeau worked for Capital One for 14 years and founder Doug Duncan formed Safe-Guard Products International, an ancillary products provider, in 1992. The company is backed by BlueMountain which has invested $110 million and Duncan, who is also the chairman and has invested $30 million.

Since the previous deal was completed, there have been some changes in the company. It has working toward automating 100% of underwriting and is nearly there, at 99%. Global Lending Services also extended the maturity dates on two revolving credit facilities used to warehouse loans for securitization, to 2017. The company has also hired a new chief operating officer, Dennis Morris, who has 25 years of experience in the auto finance industry; and new general counsel, Jackson Walker, who has over 19 years of legal and compliance experience including working for both public and private-held organizations in the insurance, consumer finance, and healthcare sectors.

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