Santander Drive Auto Receivables Trust is returning to the securitization market to raise $1.5 billion in bonds from a pool of mainly non-prime quality retail installment loan contracts.
Moody's Investors Service, which is planning to assign ratings to the notes, is noticing deterioration in performances in the 2022 SDART deals, and so it is increasing its cumulative net loss by 1.5% percentage points, according to Moody's Investors Service, which will assign ratings to the notes.
Citigroup Global Markets is the lead underwriter on the deal, which has a total securitized portfolio amount of $1.6 billion, with more than 70,089 obligor contracts.
Some 71% of the vehicle portfolio is composed of used cars, which sets up a potential credit weakness should used vehicles continue their more recent decline and cause valuations to negatively impact cash flow to the notes of recent deals, according to Moody's.
In fact the rating agency has increased it cumulative net loss expectation by 1.5% points as compared with SDART 2023-1.
This is just one of six platforms that Santander Consumer USA uses to sponsor securitization deals, and the company will also service the issued notes, according to Moody's. Santander's role as servicer, in particular, will be a boon to the deal and support the timely repayment of notes.
As for more robust credit enhancement, Moody's says the trust will build up credit enhancement as it amortizes. Initially, the deal benefits from overcollateralization (OC) that amounts to 23.75% of the initial pool balance that is expected to build to a target OC level of 32.50%, plus 2.00% of the initial pool balance, according to Moody's.
In terms of the SDART 2023-2's collateral credit breakdown, Moody's notes that it has a weighted average (WA) FICO score of 603. On a weighted average (WA) basis, the portfolio has a loan-to-value (LTV) ratio of 107%, and a WA annual percentage rate of 17.39%, the loans have an original loan term of 72 months and seasoning of five months.
The deal will issue notes through six classes of notes, with maturities ranging from May 15, 2024 through Dec. 16, 2023, with an overcollateralization tranche of $365.5 million.
Moody's expects to assign ratings of 'P1' to the class A1 notes; 'Aaa' to the classes A2 through B notes.
