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S&P cuts expected losses for next GMF prime auto loan ABS

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Nearly two years in, the performance of the earliest deals from GM Financial’s prime auto-loan securitization platform is better than expected.

S&P Global Ratings is taking notice.

For the next $1.25 billion GM Financial Consumer Automobile Receivables (GMCAR) Trust 2019-2 series, S&P has projected a lowest-ever expected loss range of 1%-1.2% for a rated GMCAR public shelf issuance. The rating agency was swayed, in part, by the 2019-2 pool’s “slightly better” credit quality from a higher weighted average FICO (777) and a lower WA loan-to-value ratio (87%) than recent GMCAR deals, the presale report states.

But the lower loss projections are also driven by the low cumulative net loss levels so far in each of the three 2017-vintage transactions issued in the platform’s first year. The earliest deal, the $989 million GMCAR 2017-1, has accumulate less than 0.6% losses as it approaches 24 months of age, S&P's presale report stated.

Last October S&P revised downward the expected cumulative losses to 1.05%-1.25% for GMCAR’s 2017-1 and 2017-2 transactions, and last month dropped the loss forecast for GMCAR 2017-3 to an even lower range of 0.95%-1.15%.

The 1%-1.2% loss range for GMCAR 2019-2 equals the range that S&P also projected in March for Ford Motor Credit’s first auto-loan securitization of the year.

Moody’s net loss expectation for GMCAR 2019-2 is 0.85%, unchanged from the previous deal that was the first 2019 auto ABS deal out of the gate in January.

The next pool is backed by $1.29 billion in receivables from 49,946 loans, nearly all of which were originated in the second half of 2018, according to presale reports. The average principal balance is $27,583, down slightly from the average $28,731 balance in GMCAR 2019-1. Borrowers are paying a higher weighted average APR of 5.37% on terms averaging 68 months.

Moody’s noted concerns of high exposure (72%) to extended-term loans, 61 months and longer, which analysts note is higher than that of peer issuers of prime-loan securitizations. The share of six-year-plus term loans (73 to 75 months) has grown to an all-time high of 14.68% for a GM Financial ABS pool.

However, presale reports show the percentage of all extended term loans over 60 months has been slightly reduced to 57.25%, compared to 57.95% in GMCAR 2019-1. The platform had a peak exposure of 65.41% in GM Financial’s fourth deal in 2018.

Used vehicles take up a 14% of the receivables, a larger share compared to peer ABS issues from Hyundai Capital America, Ford Motor Credit and regional Toyota captive-finance lender World Omni, according to S&P. Used-car prices can be more volatile, and values could deteriorate as large volumes of returned leased vehicles are expected to hit the market over the next two years.

Pickup trucks make up 44% of the loan receivables in the pool, with sport utility/crossover vehicles combining for 45%. Receivables for passenger cars total 11% of the pool’s assets. (The presale reports did not break down model concentrations.)

The loan receivables will support four tranches of senior notes and three tranches of subordinate notes, according to the presale reports. Among the triple-A tranches is a $442.84 million Class A-2A/A-2B tranche, to be split between fixed- and floating-rate notes due June 2022; a $419.83 million Class A-3 due February 2024; and a $91.52 million Class A-4 notes tranche due August 2024.

A $20.31 million Class B tranche (rated AA+ by S&P, Aa2 by Moody’s) and $19.05 million in Class C notes (AA/A1) are each due 2024. A $15.86 million Class D tranche is rated AA-/Baa1, but will not be initially offered when the deal closes.

GMF also plans a money-market tranche totaling $241 million, with preliminary short-term ratings of A-1+ from S&P and P-1 from Moody’s.

This is GM Financial’s ninth prime loan securitization and sixth public deal.

The loans were culled from GMF’s $35.36 billion managed portfolio (as of December 2018), up 28% from $27.57 billion in 2017. Although the portfolio includes both prime and subprime loan originations (through its legacy AmeriCredit nonprime platform), S&P says the portfolio size has grown and performance improved as GM Financial continued its migration toward more prime captive-finance originations through General Motors dealers that began in late 2014.

Total delinquencies improved to 4.68% in 2018 from 6.11% the year prior. Net credit losses fell to 1.72% of the annualized average of retail finance receivables, down from 2.03%.

Barclays is the structuring agent and lead underwriter.

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Prime auto ABS Barclays GM Financial