Santander Drive Auto Receivables Trust, 2022-2 is preparing to tap the capital markets for either $1.3 billion in asset-backed securities (ABS) or an upsized $1.7 billion in ABS, secured by new and used automobiles, sport utility vehicles (SUV), and light-duty trucks.
Deutsche Bank Securities is the lead underwriter on the deal, which uses a sequential-pay capital structure, according to a pre-sale report from Moody’s Investors Service.
The servicer will allocate funds for repayment first to the indenture trustee, the owner trustee and the asset representations reviewer for their respective fees. Among the notes, A classes will receive interest payments, then the first allocation of principal, followed by interest and the second allocation of principal on the class B notes and then the same for class C.
Moody’s intends to assign a P-1 rating to the $246.1 million class A-1 notes. The rating agency expects to assign ‘Aaa’ to classes A-2, A-3 and B, regardless of the initial principal balance. The class C notes should be rated ‘Aa2’, Moody’s said.
Some 73,608 contracts, or obligors, are securing the collateral pool. A large majority of the cars in the pool, 77%, are used, leaving 23% that are new, Moody’s said. Santander Drive Auto Receivables is the depositor on the transactions.
On average, the loan amounts are $23,521 if the pool is $1.3 billion, or slightly less. On a weighted average (WA) basis, the characteristics are similar regardless of the pool balance. The collateral has a WA FICO score is 600, a loan-to-value (LTV) ratio of 106%, an average APR of 14.6%, an original term of 71 months, and seasoning of five months.
Moody’s considers some of these characteristics to be credit challenges. The borrowers in the pool also have a higher debt-to-income ratio, compared with the 2022-1 deal.
Also, the rating agency is raising a flag of caution concerning the recent spike in used car prices. Should demand subside, used prices remain at risk of falling and lowering recovery rates.
In terms of credit enhancement, the Santander Drive, 2022-2, notes have initial hard credit enhancement of 46.5% on classes A-1 through A-3, while class B has CE of 34.5% and class C has 23.2%. The notes also have overcollateralization representing 22.2% of the assets.
