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OneMain's next subprime auto ABS features longer revolving period

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OneMain Holding's (OMH) next subprime auto securitization features a two-year period during which the sponsor can add qualifying loans to the pool of collateral, an indication of increasing investor comfort with the program it launched two years ago.

Two prior transactions from the OneMain Direct Auto Receivables (ODART) platform featured revolving periods, but they were only one year in length. The debut ODART deal in 2016 did not have this feature.

The $526.3 million OneMain Direct Auto Receivables (ODART) 2018-1 also showcases the auto-loan underwriting improvements by the consumer-loan finance company, including greater concentrations of higher credit-score borrowers and converting customers to automated clearinghouse payments to improve payment performance over in-branch collections.

ODART 2018-1 is the second transaction on the shelf to obtain triple-A ratings on the senior-note from both S&P Global Ratings and DBRS.

S&P cites the “successful” integration of the origination platforms of Springleaf Financial Corp. and OneMain Financial (formerly CitiFinancial) offices, which merged three years ago, as a factor supporting its AAA rating.

The 600 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 former CitiFinancial branches.

The $389.7 million tranche of Class A notes (due 2024) benefit from 22.75% enhancement, down significantly from 31% for the comparable tranche of OneMain's prior deal, ODART 2017-2, issued last November.

(The collateral for the prior deal included direct auto loans underwritten by the legacy Springleaf offices, which has had more experience in issuing the loans. Loans originated through OneMain’s former CitiFinancial network had a 41% CE. The presale report for the latest deal indicate the issuer no longer bifurcates support levels based on legacy platforms.)

The collateral for the latest deal consists of $535.7 million in loans on 37,540 accounts with an average balance of $14,270. These loans have a weighted average coupon of 18.86% on 56-month average terms for borrowers with an average FICO of 631.

These loans come with a distinct feature: the option for consumers to refinance, or “renew”, their loans for extended periods and cash out any equity in their vehicles. OneMain offers a similar "renewal" feature on its personal loan products; DBRS considers it to be an “important” element of the company’s direct auto-loan business.

There are fewer loans from OneMain’s highest internal-scoring tier in the latest deal; "S" rated borrowers make up just 24.81% of contracts, down from 29.13% for ODART 2017-2. But that is still a substantially higher concentration than the two prior deals (12.64% in 2017-1 and 10.91% in 2016-1). OneMain now pools more than 75% of its loans from its top three risk tiers, compared with between 41.44% and 47.96% in its first two direct auto securitizations.

S&P expects net losses over the life of the deal of 5.69%, in its worst-case performance scenario. In addition to direct auto-loan data since the program began in June 2014, S&P included delinquency data from OneMain’s hard-secured personal loan originations from 2006 to 2010.

DBRS expects losses to reach 5.8%. Both are slightly above the 5% loss that Moody's Investors Service forecast for ODART’s 2017-2.

Another plus for Evansville, Ind.-based OneMain is the widened availability of committed funding to the firm, according to S&P. OneMain Financial — which was servicing 2.4 million accounts in a $2.39 billion managed portfolio as of March 31 — had 10 warehouse facilities across both legacy platforms with $4.9 billion of undrawn capacity as of March 31. OneMain has also completed 21 asset-backed transactions, mostly involving in unsecured personal-loan products. The company has also issued $8.5 billion in high-yield bonds the last five years.

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Subprime lending Auto ABS