New subprime auto securitizations by Santander Consumer USA and American Credit Acceptance each utilize tweaks to recent collateral pool trends to mitigate the risk of growing losses in their managed portfolios.
Both lenders on Thursday had debut asset-backed transactions on their particular subprime securitization platforms, with both representing the 10th and 11th subprime ABS auto deals to launch in the U.S. securitization market this year – and among seven to roll out this month.
For Santander, a major jump in the weighted average (by dollar) FICO score of 609 was the most notable pool quality change for its $1.08 billion Santander Drive Auto Receivables Trust 2017-1. Santander’s last seven transactions on its SDART platform had an average borrower FICO range of 597-600, according to presale reports from Moody’s Investors Service and Standard & Poor’s.
The transaction, underwritten by Citigroup, includes three senior note classes: the short-term $194 million Class A-1 money-market tranche; a $310 million Class A-2 tranche and a $11.67 million Class A-3 series.
All of the multi-year notes have provisional triple-A ratings from S&P and Moody’s.
The hard credit enhancement of the senior notes has increased slightly to 50.7% from the previous SDART transaction last year. The initial CE support includes 37.7% subordination, 12% initial overcollateralization (with a target of 16% of the current balance) and a 1% non-declining reserve fund.
Moody’s assessed a cumulative net loss expectation for the pool at 17%, unchanged from Santander’s prior SDART 2016-3 transaction. (S&P sets the CNL range at 15.5%-16.25%).
The higher FICOs, the sharp reduction in the percentage of borrowers without FICOs (now 10.68% from SDART 2016-3’s 18.58% and a slightly higher percentage of new vehicles financed by loans in the collateral pool (39.37%) helped mitigate the high risk of more longer-term 73-75 month loans in the pool.
Santander’s new transaction is the first of the year for is SDART platform, but the second following last month’s issuance of a deep subprime pool of auto loans through its Drive Auto Receivables Trust.
Santander’s subprime serviced portfolio totals about $26 billion, a balance level it has gradually reduced from $26.7 billion since the fall of 2015. Net credit losses were 8.9% (the highest level in the six most recent years) as of last September compared to 6.8% a year prior.
Santander Consumer USA, an affiliate of Spanish bank Banco Santander, has had to restate several quarterly and annual financial statements dating back to 2013 due to errors in accounting for credit losses.
American Credit Acceptance
Meanwhile fellow subprime lender American Credit Acceptance (ACA) launched a $209 million, five-note series of receivables-backed loans for the deep subprime market.
American Credit Acceptance Receivables Trust 2017-1 (ACAR) is the 18th overall securitization for the Spartanburg, S.C., lender, and includes a higher credit enhancement figure of 66%, compared to 62.75% of its fourth and final securitization of 2016.
The weighted average FICO is 544 for the $128.34 million in receivables from 8,627 account with an average loan balance of $14,866 with an average APR of 22.77%.
Last year, American Credit and its limited originations history received its first triple-A ratings when KBRA and S&P rated the deal.
The $88.33 million Class A tranche is rated ‘AAA’ by Kroll and S&P, followed by the $23.64 million in Class B notes, $44.79 million in Class C subordinate notes; $39.81 million in Class D and $12.44 million in class D. Kroll Bond Rating Agency and S&P have each assigned provisional triple-A ratings on the senior notes.
Cumulative net loss expectations for the entire portfolio are 27.5%-28.5%, which is in line with new deals from Santander Consumer USA and DriveTime.
Total delinquencies in ACA’s $1.6 billion managed portfolio are down to 20.38% of the portfolio, compared to 21.02% in 2015. The total is still above 2013 (17.5%) and 2012 (11.59%) levels, and net charge offs as a percentage of the average amount outstanding is 14.94%, up from 14.65% in 2015.