Orico, a Japanese lender affiliated with the Mitsubishi UFJ Financial Group, is planning on its 12thsecuritization in the U.S. market of some of its domestic prime auto-loan receivables.
OSCAR US 2021-1, formed as a Delaware statutory trust, will feature four classes of senior notes totaling $526 million, secured by a pool of ¥69.46 billion (US$664.2 million) in auto loans more than 48,000 borrowers.
The U.S.-dollar denominated term notes carry preliminary Aaa ratings from Moody’s Investors Service: a $216.3 million Class A-2 tranche due March 2024, a $118.3 million Class A-3 tranche due April 2025, and a $115.4 million Class A-4 tranche due April 2028. A Class A-1 money-market tranche carries Moody’s highest short-term rating of P-1.
The notes carry some unique risks to U.S.-based asset-backed vehicles with auto-loan pools. The assets contain cross-currency risk since the loan proceeds for the notes are denominated in Japanese yen, requiring a currency swap counterparty agreement. If the counterparty has a rating below A3 by Moody’s, Orico would have to seek out alternative hedging arrangements and post cash collateral.
Additionally, Moody’s expects zero recovery rates on defaulted loans for investors, since Japanese asset trustees distribute defaulted receivables to the originator with subordinated beneficial interests, according to the ratings agency.
But annualized default rates (an average of 0.41% over six months, 0.54% over 12) were lower for Orico last year, despite the impact of the global coronavirus outbreak. Orico granted new loan schedules to borrowers if requested, while many carries extra cash last year after spending less in a stagnant economy and also receiving stimulus payments from the Japanese government.
That has led to higher prepayment levels on the account (13.1% in the past year, according to Moody’s).
The loans are mixed between new- and used car loans, with an average annual interest rate of 5.8%.
Mizuho Securities Co. Ltd. serves as the arranger, while Mizuho Securities USA and BNP Paribas are underwriting the deal.
