Santander Consumer USA’s first deep-subprime securitization of 2017 will have the highest expected net loss accumulation of any existing rated auto-loan ABS in the market, according to Moody’s Investors Service.
The $1 billion deal was one of two billion-dollar plus auto-loan asset-backeds to come to market Thursday, and adding to a blazing start for auto-backed ABS deals to start the new year. Along with six prior auto loan and lease securitizations this month, Ally Financial this week debuted its $1.12 billion transaction of prime loans it originated and services and Enterprise Rent A Car launched plans this week to finance its commercial fleet of cars and trucks in a $750.2 million notes offering.
Another transaction revealed Thursday was GM Financials’ plans to file for an $867.1 million floorplan securitization that will finance franchise dealership inventories.
Santander’s Drive Auto Receivables Trust 2017-A (DRIVE) is the eighth overall deeper subprime deal issued through the lender’s DRIVE platform, but presents the heaviest risks of this or any other subprime ABS in the market, according to presale reports.
With expected losses of 27%-28% of the pool – the highest of any expected loss for auto loan-backed securitizations rated by Moody’s – Santander’s trust is supporting the deal through a 66.35% initial credit enhancement on the senior notes, consisting of 38.85% subordination, a 25.5% initial overcollateralization (or $342.3 million), a floor of 1.5% of the pool balance and a non-declining reserve fund of 2%.
The initial OC has a target of 35.5%, as well.
DRIVE 2017-A too has four classes of Senior ‘A’ notes, but which carry a much smaller portion of the capital stack. The short-term ‘A-1’ notes are sized at $144 million (rated provisionally ‘P-1’ by Moody’s and ‘A-1’ by Standard & Poor’s); a $219 million Class A-2 series of notes to be split between floating and fixed-rate tranches; as well as an A-3 class of fixed-rate notes totaling $115.5 million. Both the A-2 and A-3 series are triple-A rated by Moody’s and S&P.
Ally Maintains Healthy Portfolio Performance
Ally Auto Receivables Trust 2017-1 is a $1.12 billion issuance backed by 69,007 new and used indirect prime auto and light-truck loans originated by Ally Bank to franchised dealerships, including General Motors. The loans are serviced by parent firm Ally Financial – an experienced servicer with over 75 prior transactions. The average principal balance is $16,181, with a weighted-average APR of 5.26.
While comparable to recent Ally transactions, Fitch Ratings notes “slightly negative shifts” in weighted-average FICO scores and loan-to-value ratios of the underlying borrowings, as well as lengthier terms on the pooled loans. More than 68% of the loans exceed 60 months, compared to just 55% for recent auto loan securitizations by Ford Motor Credit and Nissan.
More than 70% of the loans are for new vehicles, and nearly 65% are for light-duty trucks, similar to the ratio of prior Ally asset-backed transactions.
While the average FICO score of 740 is consistent with Ally’s three 2016 auto-loan securitizations, the bucket of customers with FICOs above 750 has fallen to 36.2%, while the proportion of loans issued to owners with FICO scores between 650 and 700 now totals a 30.9% of the pool – a new high for the platform. Only 6% of the loans are subvented, or loans with low APRs that are subsidized by manufacturers to customers with strong credit profiles.
But initial hard credit enhancement of 5.85% is unchanged from the three most recent AART transactions, with excess spread again set at 2.19%.
Fitch says Ally’s managed portfolio and securitization performance has been among “the best in the prime sector” over the past five years, with losses and delinquencies at historical lows. But delinquencies have risen slightly year-over-year to 1.22% for the nine months at the end of 2016, compared to 0.94% the year prior. “This recent uptick in delinquencies reflects the normalization of the portfolio, as it shifts to higher concentrations of nonsubvented, used and extended-term contracts,” Fitch reported.
Moody’s estimates the cumulative net loss for the asset pool will be 0.75%.
The 2017-1 structure includes four senior Class A notes tranches. Atop the waterfall is a one-year money-market series of notes totaling $275 million, with an expected ‘F1’ structured finance rating from Fitch and ‘P-1’ from Moody’s Investors Service. Fitch and Moody’s have each assigned triple-A ratings to the two-year, $353 million A-2 notes, the $353 million A-3 notes due June 2021 and to the $74.07 million in Class A-4 notes due November 2021.
Subordinate notes include the $23.45 million in Class B notes (rated ‘AA+’ by Fitch and a comparable ‘Aa3’ from Moody’s), $19.54 million in Class C notes (‘A+’/’A2’), and $14.52 million in Class D bonds (rated ‘BBB+’/’Baa2’).
Citigroup is the lead arranger.