Santander Bank is preparing to issue its first auto credit-linked notes deal for the year, through the Auto Credit-Linked Notes, series 2023-A. The transaction will offer investors $1.1 billion in notes. SBCLN 2023-A, as the transaction is known, will issue notes through nine classes of notes, according to Moody's Investor's Service, which will rate six of them.
J.P. Morgan and Santander US Capital Markets are lead underwriters on the deal, according to Moody's.
According to the rating agency's pre-sale report on the deal, the collateral pool contains fixed-rate auto installment contracts extended to prime-quality borrowers buying a mix of new and used cars, light-duty trucks, sport utility vehicles and vans.
Banco Santander offers a letter of credit sized to cover up to five months of missed interest payments, should SBNA default on its interest obligations or the Federal Deposit Insurance Corp. The combination of the available cash collateral and the letter of credit frees up the notes to earn a rating higher than that of the sponsor, according to Moody's.
Even so, Santander Bank's experience as a sponsor, Santander Consumer as a servicer, and the collateral pool's high credit quality all factor into the deal's key credit strengths. Moody's sets its cumulative net loss on the SBCLN 2023-A asset pool at 2.25%, and the 'Aaa' stress is 8.50%. Compared with the SBCLN 2022-C, cumulative net losses were at 0.25%, while losses on the 'Aaa' stress were 0.50%, Moody's said.
Moody's will not rate the $962.5 million, A-1 notes, the largest portion of the deal. It will, however, assign ratings of 'Aaa' to the A-2 notes; 'Aa2' to the class B notes; 'A2' to the class C notes; 'Baa2' to the class D notes; 'Ba2' to the class E notes; and 'B2' to the class F notes. All of the notes have a legal final maturity date of June 15, 2033, according to the rating agency.
