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Nissan, Mercedes-Benz, CarMax add $3.2B to auto ABS pipeline

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Three lenders added more than $3.2 billion of prime auto loan asset-backeds to the new issue pipeline Friday, according to rating agency presale reports.

Nissan Motor Acceptance Corp.’s second prime-auto ABS of 2018 is a $1 billion deal backed by $1.13 billion in receivables on originations at Nissan North America-franchised dealers.

Daimler AG affiliate Mercedes-Benz Financial Services USA is marketing via BNP Paribas its first loan securitization since 2016. The Mercedes-Benz Auto Receivables Trust 2018-1 (MBART 2018-1) is being proposed at a $1.1 billion level – with an option for a potential upsizing to $1.5 billion.

CarMax Auto Owner Trust 2018-3 is the third asset-backed this year sponsored by CarMax Auto Finance, the captive-finance arm of the 192-store CarMax Auto Superstores retail chain. CarMax Auto Finance will sponsor either a $1.2 billion or $1.4 billion portfolio of notes, depending on market conditions.

The new deals coming online bring the auto ABS volume to $61.3 billion through July 9 of this year, according to Deutsche Bank; that 's a 14% increase over the same period of 2017. Prime auto ABS issuance alone is up 27% on the year at $25 billion.

For Nissan Automobile Receivables 2018-B Owner Trust (NAROT 2018-B), most of the deal’s parameters line up with prior NAROT issues.

The credit enhancement remains unchanged at 4.25% for five tranches of senior notes, the average FICO of 774 is only slightly down from the NAROT 2018-A issuance in February, and the portfolio remains top-heavy in new vehicles (Nissan’s new-car percentage of 94.8% of the collateral is higher than typical level of captive-finance lenders).

The weighted average APR has increased slightly to 2.61% from 2.47% in the first NMAC securitization this year. The 67-month average term and 11 months' average seasoning is unchanged. The percentage of extended-term loans over 60 months is 67%, above that of peer issues from American Honda Acceptance and Toyota Motor Credit.

Nissan’s pools continue to reflect declining consumer interest in passenger sedans. According to presale reports from S&P Global Ratings and Moody’s Investors Service, passenger vehicles have declined to 32% of the pool, the lowest level ever in an NMAC securitization. That compares to 50% levels in historical NMAC pools, according to S&P.

An increase in SUVs, trucks and crossovers in the pool may raise risks in a rising fuel-price environment (repossessed vehicles could have lower-than-expected resale values). But S&P notes that the “decreased percentage of cars in the pools may help to reduce loss severity from lower recoveries on cars” with demand already waning for used passenger cars.

The capital stack for NAROT 2018-B includes a $347.5 million Class A-2 notes offering of three-year notes split between fixed- and floating-rate tranches; a similarly sized Class A-3 notes tranche of five-year notes; and a six-year, Class A-4 notes offering sized at $80 million. All of the notes carry preliminary triple-A ratings from S&P and Moody’s.

NMAC is also offering a $225 million money-market notes tranche, rated P-1 by Moody’s and A-1+ by S&P.

S&P’s is estimating a net loss range of 0.9%-1%, while Moody’s projects 1%. Both are unchanged from NMAC’s first issuance this year in February.

As of March 31, NMAC’s managed portfolio was $29.18 billion on 1.67 million contracts, up from $28.82 billion the year prior. Total delinquencies were flat at 1.94%, while repossessions rose to 2.34% from 2.08% in March 2017. Annualized net losses for the twelve months prior increased to 1.38% from 1.09% (of average outstanding principal volume).

One of the distinctive features of Mercedes-Benz Financial Services’ (MBFS) prime-loan transactions since 2013 has been that used vehicles take up a majority share of MBART collateral, even though Mercedes-Benz is the top seller of new luxury vehicles in the U.S. (besting BMW and Lexus in 2017).

New-car loans made up only 35% of the previous MBART deal in 2016, and garnered as little as 28% in the firm’s only 2014 securitization.

That trend is mostly tied to borrower preferences in leasing new Mercedes vehicles – the $22.3 billion managed lease portfolio for Mercedes-Benz Financial Services (September 2017) is nearly four times the size of its loan portfolio of $6.05 billion (March 2018).

But new-vehicle contracts are suddenly taking up a larger portion of the MBART 2018-1 deal. According to presale reports, the 48% new-car share of MBART 2018-1’s collateral is the most for an MBART deal since 2012. (Mercedes-Benz Financial Services has sponsored nine prime-loan securitizations since 2009. The firm has most recently issued securitizations involving lease-backed portfolios and notes secured by dealer payments on floorplan inventory financing).

That coincides with an 8.6% decline in used Mercedes vehicle sales last year (112,670, down from 123,328 in 2016), compared to just a 0.9% decline in new-vehicle Mercedes sales last year of 337,246, according to a company release.

The decline in preowned-vehicle share contributed to a lower weighted average loan-to-value ratio in the new deal of 104% from 106.3% in 2016. Most of the loans (74%) are long-term contracts of more than five years.

The North American indirect subsidiary and captive-finance arm of the German luxury car manufacturer will be marketing either a pool of 37,147 loans or 50,953 loans with average balances of more than $29,600, APRs of 3.39% and an average seasoning of 14 months with borrowers carrying a weighted average FICO of 768.

All but a 1% slice of the loans are for Mercedes vehicles (the remainder are a small collection of SMART-branded car loans).

Credit enhancement remains at 2.75%, covering a 2.5% overcollateralization level (equal to $25.9 million in the small pool or $35.5 million the larger stack) plus a reserve account equal to 0.25% of the initial pool balance.

The issuer plans four tranches of notes with early triple-A rating (Moody’s, S&P): a split A-2a/A-2B set of three-year fixed- and floating-rate notes totaling either $375 million or $514 million; a five-year Class A-3 tranche sized at $325 million or $449 million; and Class A-4 notes due 2024 with a notional value of $91.6 million.

The money-market tranche will be $218.3 million or $300 million, carrying A-1 ratings from S&P and P-1 from Moody’s.

MBFS’ retail-loan portfolio reported delinquencies at 1.04%, slightly below that of March 2017’s level of 1.05%. Annualized net losses were 0.21% in the first quarter.

Few changes have been made from CarMax’s earlier auto-loan securitizations this year, although the initial hard credit enhancement has declined to 8.25% from the 8.83% level for the new $1.2 billion-$1.4 billion CarMax Auto Owner Trust 2018-3 (COAT 2018-3). That’s not due to improving credit factors. Rather, the reduction was relative to the reduction in overcollateralization and initial excess spread, according to a presale report from Fitch Ratings.

The loans in the pool are almost entirely underwritten for used-car purchases (99.8% of the pool) on original terms of 66.1 months and 4.2 months seasoning. Nearly 61% are long-term loans over five years, which is in line with recent CAOT transactions.

CarMax caters to the lower prime borrower base, bringing about a weighted average FICO of 706 lower than peer issuers (a comparable Ford Motor Credit auto-owner loan securitization had a WA FICO of 737, for example). The WA APR is 8% for CAOT 2018-3 is the highest in six years with CarMax but only slightly above recent deals sponsored by CarMax due to interest rate increases and the shifting credit quality mix in pools.

Declining wholesale car values are also having an impact. Fitch reports that the recovery rate for CarMax’s $11.8 billion loan portfolio was 48.4% at year’s end 2017, compared to 48.74% a year earlier and 53.5% in December 2015. Through May 2018, the recovery rate was 53.4%, in line with the same five-month period to start 2017.

Fitch reports that the 2014-2015 vintages of CarMax securitizations have soured performance-wise, “showing early signs of weaker performance, due to weaker credit quality and lower used vehicle values,” the report stated. “Increasing used vehicle supply from off-lease vehicles and trade-ins are further pressuring ABS recovery rates, leading to moderately higher loss rates.”

ABS performance is particularly crucial for CarMax, which conducts most of its operational funding through securitizations, Fitch stated.

The CarMax Auto Finance retail loan portfolio was $11.8 billion as of May 31, up 7.8% from the same period in 2017. Total delinquencies have increased to 2.88% compared to 2.84% in May 2017 and 2.66% in May 2016. (Peak delinquencies were at 4.29% in 2009.)

CAOT 2018-3’s senior structure will feature a $398 million or $474 million Class A-2A/A-2B split tranche of fixed- and floating-rate notes due 2021, a $385 million Class A-3 tranche due 2023, and a $90.8 million Class A-4 tranche due 2024. Three classes of subordinate notes are also being offering totaling more than $88 million.

A $238 million money-market tranche is rated A-1 by S&P and F1+ by Fitch. These short-term notes would not increase in proportion to any upsizing on the term notes in the offering, according to S&P.

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Prime auto ABS CarMax Nissan Motor Acceptance Corp