Santander Drive Auto Receivables Trust 2023-5 is preparing to issue $1.3 billion in asset-backed securities (ABS) from a pool of installment auto loan contracts extended to non-prime borrowers.
Sponsoring the deal is Santander Consumer USA, which has a long track record as both a servicer and deal sponsor, according to ratings analysts at Moody's Investors Service. These are among the deal's credit strengths, the rating agency said. Santander Consumer has a non-prime serviced portfolio of about $29.2 billion, which it has accumulated more than 20 years of underwriting loans and servicing them, the rating agency said.
Citigroup Global Markets, Santander Investment Securities and Wells Fargo Securities are managers on the transaction, according to the Asset Securitization Report's deal database.
The current deal will issue notes through six tranches of notes, five of them rated by Moody's, and a sixth that provides the deal's overcollateralization, the rating agency said. The notes have total initial hard credit enhancement of 43.00% on all of the class A notes; 32.00% on the class B notes; and 20.15% on the class C notes. The notes also benefit from a reserve fund amounting to 1.00% of the pool balance, Moody's said.
The coupons had not been determined by press time. Legal final maturities were clear, however, and they were Oct. 15, 2024, July 15, 2027 and Sept. 15 on the A1, A2 and A3 notes, respectively; Dec. 17, 2029 on the class B notes and Feb. 18, 2031 on the class C notes.
Enhancement will build up in SDART 2023-5 as the pool amortizes, according to Moody's. That enhancement includes initial over-collateralization of 19.15% of the pool balance, which is expected to build to a targeted level of 27.50% of the outstanding pool balance, plus 2.00% of the initial pool balance, according to the rating agency.
Aside from these positive attributes, the notes are saddled with several challenges to their timely repayment. One is the weak credit quality of the underlying loans, which have a weighted average (WA) FICO score of 605. The pool has only a marginally higher debt-to-income ratio of 37.1%, a tick higher than the 37.1% seen on the 2023-4.
Lower recovery rates on used cars, which was a heightened concern during the shortage of semiconductor chips and new cars, is another potential risk. Prices on used cars had softened in recent months, along with the easing of supply shortages for new vehicles and pent up demand.
Moody's expects to assign ratings of 'P-1' to the A1 notes; 'Aaa' to the A2 through B notes; and 'A1' to the class C notes. Fitch Ratings intends to assign 'F1+' to the A1 notes; 'AAA' to classes A2 and A3; 'AA' to the class B; and 'A' to the class C notes
