Santander Consumer USA (NYSE: SC) has vastly increased the share of risky seven-year auto loans in its second 2020 pool of securitized new- and used- Chrysler vehicle contracts.
But the lender also ensured a greater presence of higher credit-quality borrowers in the $610.84 million Santander Consumer Auto Receivables Trust (SCART) 2020-B transaction.
According to a presale report from Fitch Ratings and S&P Global Ratings, Santander has dedicated 10.8% of the collateral pool to 84-month contracts, compared to just 1.6% in the first 2020 SCART offering in May.
In most auto ABS deals, a high concentration of extended-term loan contracts represents a slight ding to credit risk, due to the fact loan amoritization slows in proportion to a vehicle's already shrinking resale value. But Fitch noted that early payment performance data for 84-month Chrysler Capital contracts shows they've actually accrued fewer credit losses relative to oustanding 72-to-75 month loan contracts underwritten through the Santander division and pooled into prior ABS deals.
That odd data result is probably the result of Santander’s focus on concentrating more higher-FICO prime borrowers into the 2020-B pool compared to SCART 2020-A, Fitch wrote. The weighted average FICO of the 18,644 loans in the deal is 750 – whereas May’s transaction was only 690.
With such limited data, Fitch still "believes there is an increased risk associated with longer-term loans as the loans amortize more slowly relative to vehicle depreciation,” the ratings agency report stated.
Fitch assigned a base-case loss proxy of 4.25% on the deal, inside of S&P’s expected loss range of 5%-6%.
S&P’s range was based on static pool data of Chrysler Capital originations since 2013, which have expected cumulative net losses of between 4.5%-5%. the agency also factored in near-term uncertainty of pandemic-related stresses on borrowers.
The SCART 2020-A capital stack includes a $93 million money-market tranche assigned each agency’s highest short-term rating (an early F1 from Fitch, A-1+ from S&P). The deal’s Class A term tranches all carry AAA ratings from the agencies: the $162 million Class A-2 notes due February 2023, the $162 million Class A-3 notes due August 2024 and the $60.84 million in Class A-4 notes maturing in April 2025.
All of the Class A notes benefit from 25.4% credit enhancement, a significant decline from 31.1% in the prior deal due to the improved credit metrics.
Santander is also marketing five classes of subordinate notes.
Santander excluded loans which received an extension or modification related to COVID-19 as of the July 31 cutoff date for the pool. (However, 0.16% of the total number receivables have since received an extension through Aug. 10).
The loans in the pool have a $636.3 million aggregate balance, with an average principal balance of $34,129 with an average APR of 4.89% (down from 6.35% in SCART 2020-A). The WA loan-to-value ratio also shrank from the prior ABS transaction, down to 98%.
Dodge- and Jeep- branded models are the top models the 2020-B pools, combining for 90% of the pool's aggregate principal balance. That’s similar to 2020-A, which had 87%.
Santander, traditionally a non-prime lender, has served as
JPMorgan is the underwriter on SCART 2020-B.
