OneMain Holding (OMH) LLC’s third securitization of cash-out auto loans is for the first time including originations from the legacy consumer loan branches it acquired from CitiFinancial two years ago.
OneMain Direct Auto Receivables Trust (ODART) 2017-2 is a $500 million transaction backed by receivables from direct auto loan contracts originated or acquired through both its legacy SpringLeaf branches plus the 1,000-plus OneMain branches formerly operated by CitiFinancial.
The 600 legacy SpringLeaf branches have operated under the OneMain name since 2015, although OMH maintains them under its SpringLeaf Financial Corp. (SFC) subsidiary. OMH’s OneMain Financial Holding (OMFH) unit houses the ex-CitiFinancial branches.
Two previous securitizations involving OneMain auto loans were for direct loans underwritten at the legacy SpringLeaf offices and sponsored by SFC, which has underwritten its direct auto loan product since June 2014. Auto loans through the former Citi OneMain branches were launched in December 2015.
The new pool balance of $515.4 million averages out to $14,826 for the 34,768 loan contracts in the collateral pool. The accounts carry an average loan-to-value ratio of 126.33%, compared to around 116% for than the two prior ODART auto-loan transactions. Over 99% of the contracts are for used vehicles, which average six years of age.
Five tranches of notes will be issue din ODART 2017-2. The $309.3 million tranche of Class A series carries preliminary triple-A ratings from Kroll Bond Rating Agency and Moody’s Investors Service.
Although all the loans are originated via SFC’s underwriting criteria, OneMain has to carry higher levels of credit enhancement support in the new deal because of the more limited auto-loan servicing experience of OMFH branches. The new deal is supported by 41% credit enhancement level compared to 31% required of ODART’s auto-loan securitization in February that only carried SFC originations.
Credit enhancement includes subordination, a cash reserve account and an excess spread of 12.2% derived from the weighted average collateral APR (17.3%) minus the 3.05% weighted average coupon and 2.03% servicing fees attributed to the deal.
Moody's expects losses to reach 5% over the life of the deal.
In its presale report, the rating agency note that OneMain’s direct auto loans tend to have shorter average lives than those of its peers, in part due to its practice of "renewing," or refinancing the loans of qualifying borrowers, allowing them to cash out equity. This results in early prepayment of the loans, reducing the risk of default. Due to the revolving nature of the collateral pool, the new loans may end up in the trust.
These borrowers are “essentially using their depreciating vehicle as a declining line of credit,” Moody’s stated in its report.
With a weighted average APR of 17.3%, the annual excess spread available to protect noteholders will be higher than pools with similar loss expectations. However, the reinvestment allows the weighted average APR to fall to 16% during the revolving period.
The weighted average FICO of the pool is 642, as OneMain typically issues auto loans to subprime borrowers with FICO scores under 700 and for terms averaging 53 months.
Natixis, RBC Capital Markets and Citigroup were the lead underwriters on the deal.