Santander Consumer USA has substantially increased the concentration of new vehicles in its third subprime auto-loan securitization of 2018, according to rating agency presale reports,
Subprime borrowers tend to purchase used cars, which account for the bulk of collateral in deals sponsored by many of Santander's competitors. Yet new cars represent 55.8% of the collateral for the $1.2 billion Santander Drive Auto Receivables Trust (SDART) 2018-3. By comparison, the new-car concentration from this issuance shelf has not exceeded 40.9% since 2013.
The prior transaction, SDART 2018-2. completed in April, had a new-car concentration of only 40.5%.
With a higher percentage of new cars in the pool, the average remaining loan balance of $19,045 is substantially increased from Santander’s first two deals this year – $16,636 in SDART 2018-2 and $16,798 in SDART 2018-3, according to Moody’s Investors Service.
Despite the jump in new-car originations, however, Moody's considers the credit profile of the overall collateral pool to be weaker than recent Santander deals. In its presale report, it pointed to decreases in weighted average seasoning (4.6 months from 10 months) and lower levels (6.3%) of verified borrower incomes in the pool, compared to a 13%-14% range in SDART issues since 2014.
The weighted average original terms are unchanged at 71 months, although the percentage of extended-term loans of 73-75 months rose sharply to 15.04% from 11.83%, S&P reports. Extended-term loans experience net loss levels that are 1.4 times those of Santander’s subprime auto loans originated for 12- to 60-month terms, S&P noted. Another growing risk factor, said S&P, is the “meaningful” level of loans with no FICO scores (about 10% of the collateral pool).
The weighted average FICO among the remaining loans is 609, a figure higher than other nonprime issuers, including Exeter Finance and CIG Financial.
Not all of the credit metrics deteriorated, however. The deal's weighted average loan-to-value ratio decreased to 103.7% from 106.8% in the prior deal.
And Moody’s 16% expected loss levels are unchanged from SDART 2018-2. S&P forecasts a net loss range of 15.75%-16.50%, similar to the most recent SDART transaction (2017-3) that S&P rated.
Three classes of senior notes and four classes of subordinate notes will be issued in the transaction. The senior stack consists of a $208 million money-market tranche with a preliminary A-1+ rating from S&P Global Ratings and P-1 from Moody’s and two classes of term tranches rated triple-A: a $282 million of three-year Class A-2 notes and $145 million of four-year Class A-3 notes. The A-2 notes will be split between fixed- and floating-rate; the sizes are to be determined, although the variable-rate notes will total no more than $141 million.
All of the senior notes benefit from slightly higher credit enhancement (52.3%) than Santander’s prior SDART transaction (51.7%).
The new deal is also Santander’s fifth SDART securitization since it extended repurchase protections for ABS investors last year, pledging to take back pooled contracts in which the borrower failed to make the first two payments.