Santander Consumer USA's purchase of DriveTime Automotive Group’s auto finance portfolio signals a growing interest in subprime auto financing, according to Standard & Poor's note released this morning.
In a Sept.14 Securities and Exchange Commission filing from DriveTime, the company said that its affiliate DT Acceptance Corp. will sell its finance receivable portfolio to Santader in a deal worth $700 million. The portfolio comprises vehicle-related installment sales contracts and certificates representing the unit's residual interests in securitizations of finance receivables.
S&P noted that Santander and DriveTime are both active subprime auto ABS issuers so the acquisition’s effects on the asset-backed market is unclear at this juncture.
DriveTime's total auto loan portfolio at the end of 2Q12 was $1.61 billion, up from $1.46 billion at the end of 2011, S&P stated.
In a related report on subprime ABS released yesterday, the rating agency's analysts said that in the longer haul, they anticipate increased competition to weaken credit standards in the sector, which will, in turn, lead to higher losses.
They also think that used vehicle values will drop, an event that should result in higher collateral losses. Credit enhancement and other structural protections supporting ABS deals will protect the 'AAA' and 'AA' classes from experiencing losses, analysts added.
They noted that subprime auto ABS ratings performance has been strong as analysts had increased the ratings on many offerings while had not lowered any ratings because of deteriorating collateral performance.