OneMain Finance Corp., which issues auto loans directly to consumers, has received preliminary ratings for its first auto loan asset-backed securities issue of 2023.
The company has been behind seven auto loan, and 27 consumer loan securitizations since 2013, had an auto loan portfolio of approximately $4.4 billion as of December 31, 2022, according to Kroll Bond Rating Agency, one of the companies that will assign ratings to the notes.
For OneMain Direct Auto Receivables Trust 2023-1, known as ODART 2023-1, OneMain Finance will act as sponsor, servicer, performance support provider, and administrator, according to S&P Global Ratings.
ODART 2023-1 will issue four classes of notes totaling $400 million, all of which will carry a fixed interest rate. The net proceeds from the sale of the notes will be used to acquire the auto loans, fund the reserve account, and repay existing debt, according to KBRA.
Initial credit enhancement consists of subordination of junior notes classes (except for the Class D notes), a cash reserve account equaling 0.5% of the initial pool balance, overcollateralization of 5.25% of the initial pool balance, and excess spread, the rating agencies said.
KBRA raised a number of potential credit challenges. One is the failure of a loan servicer, which could disrupt loan collection. Other potential risks include increased delinquency and annualized net loss rates for outstanding ODART transactions, and higher LTVs (loan-to-value). Lower recoveries in the current used car market, where used car pricing could return to pre-COVID lower levels and result in shortfalls to outstanding notes, is another risk. S&P, which shares this last concern, also points to the longer-term loss in value of internal combustion engine vehicles (ICE) versus electric vehicles.
S&P views the transaction's exposure to environmental credit factors as above average, given that the collateral pool primarily comprises vehicles with ICEs, which emit pollutants contributing to climate transition risks.
The transaction includes a three-year revolving period, during which collections may be used to purchase new collateral, according to KBRA.
OneMain, an originator and servicer of auto and consumer loans, operates the largest branch-based consumer finance company in the U.S, according to KBRA, which has assigned preliminary ratings to the notes. It has been in the consumer finance business, through its predecessors, for over 100 years.
The $290.24 million of senior Class A notes with initial credit enhancement of 31.75% and maturity of November 14, 2029, received an AAA rating from both KBRA and S&P.
The $51.5 million class B notes with credit enhancement of 19.55% received a preliminary rating of AA+ from KBRS and AA from S&P, while the $31.87 million of Class C notes with credit enhancement of 12% got an AA rating from KBRA and an A rating from S&P.
The $26.39 million Class D notes with 5.75% initial credit enhancement received AA- from KBRA and BBB- from S&P.
The Class B and C notes both have a maturity of February 14, 2031, while the Class D notes mature on February 14, 2033.
