OEM incentives, lengthy seasoning enhance Scotiabank auto ABS

Register now

The Bank of Nova Scotia (d/b/a ScotiaBank) is planning a second securitization of its prime Canadian retail auto-loan originations this year in a $500 million U.S. currency transaction, according to presale reports.

Securitized Term Auto Receivables Trust (START) 2017-2 includes senior bonds that carry preliminary triple-A ratings from Moody’s Investors Service and S&P Global Ratings.

The preliminary tranche sizes are $110 million for the Class A-1 money market notes; $192 million in the Class A-2a and A-2b tranches split between fixed- and floating-rate notes that mature in January 2020; a class A-3 series due 2021 sized at $140 million and a five-year, Class A-4 tranche totaling $58 million.

The deal also includes two tranches of unrated subordinate bonds that will be retained in Canadian currency totaling CAN$42.2 million, serving as subordinate credit enhancement along with a 0.54% reserve fund and a yield supplement account for a total senior-note credit enhancement of 7.04%.

The total receivables in the pool total CAN$697.8 million (US$564.17 million) across 34,237 contracts with an average balance of CAN$20,387.

The deal, Scotiabank's third overall, has an unusually low weighted APR of 2.42% for a transaction featuring new and used cars. The ratings agencies attribute that to the high percentage (68%) of loans that are incentivized (or subvented) by manufacturers’ low-rate incentive programs which also impacted the deal’s yield supplement increase to 6.98% (CAN$48.7 million) over the Series 2017-1 transaction’s level of 5.94%.

The pool has a weighted average FICO of 780 and increased percentage of loans with original terms of 60-72 months (46.9%) compared to the 2017-1 transaction of 41.2%.

In addition, the receivables in SSTRT 2017-2 have been seasoned an average of 19 months, up from 17 months in the prior transaction – another credit strength cited by both agencies.

Nonetheless, according to Moody’s, Scotiabank still originated a much lower percentage of long-term loans in the latest pool compared to other peer Canadian auto-loan securitizations, with a weighted average original term of 64 months per loan.

The percentage of loans under 60 months in START 2017-2 is 53.11%; for the recent Ford Auto Trust Securitization Trust’s 2015-R4 transaction, it’s 39.65%.

Moody’s expects a cumulative net loss of 0.75% of the collateral pool; S&P has assigned a lifetime CNL range of 1.3-1.5%. Moody’s stated in its report it assigned the lower CNL due to the pool’s credit characteristics it considers better than Bank of Nova Scotia’s managed pool.

For reprint and licensing requests for this article, click here.