Santander Bank is sponsoring its second auto credit linked notes, a deal that will raise $2 billion from the capital markets.
Unlike most bank-sponsored, credit-linked note deals, a cash collateral account will secure the note payments to the deal, known as Santander Bank Auto Credit-Linked Notes, Series 2022-B. Santander expects to fund the collateral account with cash proceeds from the initial sale of notes with a depository institution with a rating of at least 'A2' or 'P-1', form Moody's Investors Service.
While the deal is the second from the Spanish bank, the deal will be the first of its kind that Moody's Investors Service will rate, according to the rating agency. Fixed-rate auto installment contracts with prime-quality borrowers will secure the deal.
While the bank originated the loans, Santander Consumer USA, will act as servicer of the reference obligations, according to Moody's.
Santander Bank Auto Credit-Linked Notes, 2022-B, will issue the notes through a senior-subordinate capital structure. The trust will lock out classes F, G and R from principal payments until the other classes are paid in full, building credit enhancement levels to classes A through E, according to Moody's.
Moody's expects to assign ratings of 'Aaa' through 'B2' on the notes from classes A-2 through F. Class A-1, which Moody's not expect to rate, will issue the bulk of the notes, $1.7 billion, accounting for 87.5% of the pool's assets.
Moody's expects Santander's experience as both sponsor and servicer to be a boon to the credit of the notes. Santander has a long track record in the asset-backed securities (ABS) market, with more than 20 years of experience underwriting auto loans. Its servicing experience is solid, as well.
"SC's servicing platform is large in scale with significant franchise value, and a long track record," according to a Moody's pre-sale report.
The rating agency also noted that the collateral pool is comprised of loans of high
Credit quality. On a weighted average (WA) basis, the borrowers have a FICO score of 773, the loans have an original term of 70 months, and loan-to-value (LTV) ratio of 95%.
Despite that high LTV ratio, Moody's noted that its credit loss expectation of 2.00% is based on part on the collateral pool's credit quality.
