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Nissan's next auto ABS features less exposure to long-term loans

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Nissan Motor Acceptance Corp. is making its third trip of the year to the securitization market with as much as $1 billion of bonds backed by prime retail auto loans.

As with recent transactions, the captive finance arm of Nissan North America is sizing the deal at either $750 million or $1 billion, depending on investor demand. The two prior transactions this year ended up raising $1 billion each.

Nissan has slightly reduced exposure to loans with terms of longer than 60 months in Nissan Automobile Receivables 2018-C Owner Trust, according to Moody’s Investors Service. Longer-term loans represent around 65% of the pool of collateral, down from 67% and 68% for the two prior transactions, but still above 2016 and 2017 transactions with exposure ranging from 53% to 64%. Longer-term loans are generally considered to be riskier because they amortize more slowly, and cars depreciate once they are driven off a dealer’s lot. This results in the borrower being underwater – owing more than the value of the vehicle – for longer, increasing the risk that investors may not fully recover their principal in the event of a default.

Despite the slight reduction in exposure to longer-term loans, however, Moody’s expectations for cumulative net losses on the deal are unchanged from the prior to transactions, at 1% of the original principal balance (but slightly higher than loss expectations for 2017 transactions of just 0.85%).

Moody’s reiterated in its presale report that Nissan’s 2017 and 2016 vintage transactions are performing worse than previous vintages, hence its expectations for higher losses on 2018 deals.

In many other respects, the credit characteristics of the collateral for NAROT 2018-C are similar to that of recent transactions; the weighted average FICO of 776 is higher than the 774 of 2018-B and the same as that of 2018-A. The percentage of tier 1 loans are slightly higher at 68.05% and 67.97% for smaller and larger pool respectively, compared to 2018-B at 66.39% but slightly lower than 2018-A at 68.98%.

The weighted average annual percentage rate of 2.96% and 2.97% for the larger and smaller pool respectively, are higher than all prior transactions.

Four tranches of rated notes will be issued in the transaction, a money market tranche and four term tranches rated AAA: two tranches, one fixed-rate and one floating-rate, will mature October 2021; a fixed-rate tranche matures in June 2023 and a fixed-rate tranche maturing in June 2025. All four tranches benefit from 4.25% credit enhancement consisting of a reserve fund equal to 0.25% of the initial principal balance and 4% overcollateralization.

Mizuho Securities is the lead underwriter.

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