New prime auto loan securitizations totaling a combined $2.48 billion for Ally Financial and Nissan Motor Acceptance Corp. show that even captives are facing mounting pressures from declining auto sales and slightly deteriorating borrower credit quality.
For Ally’s latest deal, the $1.1 billion Ally Auto Receivables Trusts 2017-4, the weighted average FICO of 737 is the lowest in the company’s securitizations since 2009-A and slightly lower than the company’s previous two deals (738 and 739, respectively).
The average credit score of borrowers in Nissan Motor's new pool fell as well. Although 772 is still well above the floor for the prime lending category, it is still a decline from 775 from its first securitization this year. The NMAC trust is including more borrowers with FICOs under 701 than its three previous transaction, and a higher proportion of borrowers in its lowest internal credit-scoring tier in comparison to recent transactions.
The slight declines are a possible sign of increasing competition for buyers amid a slumping sales environment, in particular for GM and Chrysler (both franchises served by Ally’s captive finance business).
Ally Auto Receivables Trusts 2017-4
The Ally Financial trust will issue four senior tranches, including three series totaling $768.8 million that carry preliminary triple-A ratings by Fitch Ratings and S&P Global Ratings. The other is a one-year $280 million money-market tranche. Ally will also issue three subordinate tranches totaling $57 million.
The senior notes benefit from 5.85% credit enhancement, consistent with Ally’s past three transactions this year. .
S&P expects net losses between 0.90% and 1.05%, consistent with its loss expectations for Ally’s prior securitization. Fitch has projected cumulative net losses at 1.25%.
Since 2014, Ally has included lower concentrations of new vehicles in its securitizations. Consistent with the deals in recent years, 70% of the loans in the pool are for new vehicles. Given recent declining performance trends in the used car market, securitizations with larger concentrations of used cars tend to exhibit higher loss severities. By comparison, new vehicles in Ally deals before 2014 typically comprised 80%-90% of a deal, prior to the launch of GM Financial as a new captive lender for GM dealers through GM's newly acquired AmeriCredit unit.
GM and Chrysler vehicles comprise the majority of the pool, with the top five brand concentrations being Chevrolet (33.2%), GMC (9.5%), Ford (8.1%), Jeep (7.2%), and RAM (5.6%). Concentrations of Chrysler vehicles in Ally ABS pools have decreased in recent years; for example, Dodge vehicles (a Chrysler brand) comprise just 4.4% of the total pool compared to 22.3% in 2011.
GM’s year-to-date sales performance is down almost 4% from this point last year, and Chrysler’s has fallen 7.5% over the same period. Performance in July alone for both manufacturers fell significantly, with GM’s July sales 15.5% lower than the month prior and Chrysler’s down 11%.
The shift is reflected in Ally's new pool, with just over 67% backed by loans on trucks - up almost three percentage points from its inaugural 2017 deal.
Nissan Auto Receivables 2017-B Owner Trust
Nissan’s $1.38 billion deal also includes three senior tranches sized at $1.05 billion, and all with early AAA ratings from Fitch and Moody’s Investors Service. The first tranche in the waterfall after a $330 million money-market series is the two-year $539 million Class A-1 issue split between fixed- and floating-rate notes. The deal also includes a three-year $389 million Class A-3 series and a four-year tranche of Class A-4 notes totaling $124.62 million.
Credit enhancement on all four senior classes is 4.25%, consistent with prior Nissan deals.
Within the collateral pool, the number of loans with terms longer than 60 months is up slightly from the previous transaction at just under 64% of the total pool but consistent with other recent Nissan deals. Typically, auto loans with long terms tend not to perform as well as short-term loans because borrowers typically end up owing more than the value of a vehicle as it depreciates over time.
However, the average remaining term on loans in the deal is notably lower than other transactions. Borrowers have an average of approximately 49 months remaining on their loans, and the highest average seasoning of any Nissan pool to date at 17.4 months. Typically, pools with higher seasoning perform better than unseasoned pools since losses have occurred since before the securitization. For comparison, the average remaining term for borrowers in Nissan deals between 2014-B and 2017-A ranged from around 53 to 58 months, while seasoning ranged between approximately 7 and 12 months.
Nissan’s year-to-date sales performance has fallen 3.2% from last year. However, July month-over-month sales did increase just below 2%.
Similarly, the concentration of SUV/crossover/truck collateral in Nissan’s deal is just below 59% of the total pool, compared to 54% in its prior securitization.
New vehicles comprise a slightly higher concentration of the total pool than in the company’s previous securitization at 94.66% in the latest deal compared to 94.45% earlier this year.
Moody’s expects net losses to reach 0.85%, with 30- and 60-day delinquencies climbing slightly for Nissan Motor Acceptance's $29 billion managed portfolio.
SG Americas Securities is the lead underwriter on Nissan’s deal.