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Santander adding $1B-1.3B to subprime U.S. auto ABS pipeline

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Santander Consumer USA’s dive into deep-subprime auto-loan securitizations three years ago appears to be going swimmingly well.

According to S&P Global Ratings, recent securitizations on Santander’s DRIVE platform (Drive Auto Receivables Trust) have been “performing better than we originally expected,” and resulted in the recent reduction of original loss expectations for 2016-vintage DRIVE transactions.

The trust’s 2017 deals are also on track to improve upon S&P’s original expectations, which is propelling the ratings agency toward a similarly favorable view for the potential in Santander’s plans for its next deal, the $1.07 billion (or an upsized $1.3 billion) DRIVE 2018-3 transaction.

The 15th overall DRIVE transaction since 2015 has similar credit characteristics and projected loss levels maintained at 26.5-%-27.5%, but is being proposed with a lower Class A note credit enhancement level of 61.6% from the 63.6% for the same class in DRIVE 2018-2 issued in May.

In addition, Santander is eliminating loss triggers that in prior deals were featured to protect investors with increased overcollateralization targets in the event of breaching a loss threshold. “While all prior DRIVE transactions included a loss trigger,” S&P’s presale report stated, “no benefit was provided to the structure in the cash flows since the O/C never reached its target before the trip of the trigger.”

Moody’s Investors Service is also rating the deal, with an expected net loss of 26% assigned to the pool that is unchanged from the DRIVE 2018-2 issue.

Santander’s DRIVE platform has lower weighted average FICOs (582 in the current pool) and higher average APRs (19.1%) than with the auto loans the lender underwrites for near-prime borrowers through its Santander Drive Auto Receivables Trust (SDART) or its Chrysler Capital Auto Receivables Trust (CCART) it sponsors for loans originated in partnership with Fiat Chrysler Automobiles NV.

(In a not-as-rosy scenario for Santander, Fiat Chrysler has announced plans to form its own captive-finance operation. The automaker may exercise an option to buy out of its relationship with Santander, costing the lender up to one-third of its originations business.)

The deal’s other characteristics include a weighted average of 71-month original terms with one-month seasoning, on loans primarily for used vehicles (56.74% of the pool).

The smaller proposed DRIVE 2018-3 pool will be backed by $1.29 billion in loans, while the upsized pool would be secured by loans with $1.64 billion in original balances.

The $388.2 million in Class A notes are divided between a split Class A-2 tranche of fixed- and floating rate notes totaling $228 million and a three-year tranche of Class A-3 notes with a preliminary size of $160.2 million. All carry preliminary triple-A ratings from S&P and Moody’s Investors Service.

A $121 million or $155 million money-market tranche has early ratings of A-1+ from S&P and P-1 from Moody’s.

Santander’s trust is also issuing four classes of subordinate notes totaling either $499.5 million or $709.2 million, depending on any upsizing.

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Subprime lending Auto ABS Santander Consumer USA