Prime auto-loan ABS expected to top $50B for 2019
U.S. prime auto loan securitizations will top $50 billion in total issuance for the first time in seven years, under proposed new note offerings that include captive finance arms of both Ford Credit Co. and American Honda.
The captive finance arms of both American Honda and Ford Motor Co. plan to issue securitizations of prime auto loan receivables of more than $1 billion each, with both proposing deals that could potentially be upsized at closing.
Fort Credit Auto Owner Trust 2019-C – the third loan-backed deal this year from the FCAOT platform – will be sized at either $1.05 billion or $1.3 billion, depending on market conditions, according to presale reports.
Honda, via Citigroup, is offering either a $1.35 billion or $1.62 billion pool of certificates secured by vehicle financing by American Honda Finance Corp.
Those deals, plus a U.S.$1.4 billion transaction secured by Canadian auto loans issued by Scotiabank, will add either $3.8 billion or $4.32 billion to the total $47.6 billion is prime-loan ABS issuance sponsored by prime auto lenders this year.
The $51.4 billion or $51.92 billion total following each deal’s pricing would be the largest annual volume of prime auto loan securitizations since $50.87 billion in notes were sold in 2012. The 2019 YTD total has already exceeded the 2018 volume of $46.88 million.
Ford Motor Credit
Ford Motor Credit’s transaction features four tranches of senior notes, three of which are term bonds with preliminary triple-A ratings from Moody’s Investors Service and S&P Global Ratings. The Class A-2 notes due July 2022 in each proposed pool ($346.1 million or $432.6 million if upsized) will be divided into fixed- and floating-rate tranches.
Also receiving triple-A ratings are the Class A-3 notes (either $345.98 million or $432.47 million) maturing in March 2024 and the Class A-4 notes due April 2025 to be sized at either $104.8 million or $130.99 million.
The Class A-1 money-market tranche ($203.2 million or $254.1 million) carry short-term P-1 ratings from Moody’s and A-1+ from S&P.
The Class A notes benefit from 5.25% credit enhancement.
In addition, Ford Credit will sponsor two subordinate Class B and C tranches. The Class B notes, with an early Aa1 Moody’s rating and an AA rating from S&P, have less than a six-year maturity and will total either $52.63 million or $65.8 million, upsized.
The deal is the third issuance of prime retail installment loans by Ford Motor Credit Co. in 2019. The transaction includes collateral that primarily consists of new-car loans (89%) and with extended terms beyond six years (61%). Loans beyond five years have historically show weaker performance than those 60 months or less. That’s higher than all previous FCAOT transactions but represents an upward trend since 2014.
The vehicles being financed are primarily trucks and SUV/crossovers (87% of the collateral balance) across the 41,455 loans in the smaller pool or 51,620 loans in the upsized pool. The weighted average FICO is 741 (or 740 in the upsized pool), which is slightly higher than recent FCAOT deals. The loans also have WA original terms of 66 months and nine months of seasoning.
Expected losses on the deal remain minimal compared to prior Ford Credit-sponsored transactions. Moody’s expects losses of 1%, while S&P estimates a range of 1%-1.2%, according to presale reports.
According to Moody’s, Ford is experiencing higher net losses to date in 2016 and 2017 vintage deals compared to 2014 and 2015; Some 2018 and 2019 deals “are showing signs of improvement, but it is still early in the transactions’ lives,” the presale report stated.
Managed portfolio totals $46.5 billion as of Sept. 30, containing 2,15 million contracts. While 31- to 60-day delinquencies in the first nine months of the year (1.28%) are trending ahead of 2018 (1.17%), net losses are marginally down at 0.49% from 0.51%.
Citigroup, Deutsche Bank, HSBC, BNP Paribas and Scotia Capital are the underwriters on the deal.
The fourth auto-loan ABS issuance for American Honda this year could include the lender’s largest pool in seven years. The potential $1.62 billion upsized pool for Honda Auto Receivables 2019-4 Owner Trust (HAROT) would be the largest offering from the shelf since the $1.694 billion HAROT 2012-1 offering from February 2012, according to market data from Finsight.
Both Fitch Ratings and S&P have issued preliminary AAA ratings to three classes of senior notes in both proposed pools, which each benefit from 2.75% credit enhancement. The Class A-2 notes due June 2022 and the Class A-3 notes with a January 2024 maturity are each sized at either $440 million or an upsized $529 million. The Class A-04 notes due January 2026 will total $101.8 million or $120.9 million.
The pool’s credit quality is typical of Honda securitizations with among the highest weighted average FICOs (770) for a prime-loan issuer. New vehicles (Honda- and Acura-branded) make up nearly 92% for each proposed pool and extended-term loans make up 27.7% of each pool, according to presale reports.
Fitch and S&P also note a higher concentration of subvented loans (83%) which benefit from manufacturer subsidies to discounted financing rates to higher-FICO borrowers.
The loan pool will contain either 65,405 or 78,445 loans, with principal loan balances exceeding $20,600 each with a WA APR of 2.57%. Original terms are about 61 months, with one year’s seasoning.
Fitch estimates CNL losses below 0.5%, while S&P’s range is 0.5%-0.6%.
The $1.39 billion Securitized Term Auto Receivables Trust (START) 2019-CRT prime auto-loan ABS is the second securitization of retail installment loan contracts this year by the Bank of Nova Scotia, and the seventh overall.
Unlike previous Scotiabank deals, the collateral pool for the new deal is primarily for used-car loans (making up 79.1% of the pool balance).
The $905.29 million Class A notes are rated Aaa by Moody’s Investors Service. The three classes of subordinate totaling have ratings of AA (low), A (low) and BB from DBRS Morningstar, and Aa1, A2 and Ba1 from Moody’s.
DBRS Morningstar is not rating the senior notes tranche.
The pool includes 71,243 fixed-rate loan contracts with an average contract balance of $19,536, and payable in Canadian dollars. (A cross-currency swap arrangement is expected to be in place at closing).
The WA FICO of borrowers in the pool is 749, slightly lower than Scotiabank’s first transaction of the year. The loans have 72 months of average original terms and are highly seasoned at 21 months, compared to 17 months in previous START deals, according to Moody’s. The WA APR is 6.09%, with 73.1% of the loans either being for passenger sedans or SUVs.
Moody’s expected cumulative net losses are 2%, while DBRS Morningstar’s base-case CNL range estimate is 2.35%-2.55%.
The deal was placed by Scotia Capital, BNP Paribas and Barclays.