Subprime auto lenders Santander Consumer USA and Exeter Finance Corp. are securitizing new asset-backed loan pools featuring slightly improved credit risk parameters.
Santander Drive Auto Receivables Trust (SDART) 2016-3 consists of $1.178 billion in new and used vehicle loans originated or acquired by Santander with a potential upsizing in the works. The loans will back the issuance of $1.06 billion in notes by the trust.
Exeter Automobile Receivables Trust 2016-3 is a $450 million securitization of a pool of $471.2 million in indirect subprime loans.
For Santander, the new deal shows the U.S. arm of the Spanish bank has enough collateral in its tank to pool its largest collection of subprime auto loans for a securitization within the past three years, despite a downturn in recent originations.
The capital stack for Santander's deal includes three Class A note tranches: a short-term $195 million money-market issue; a $252 million slice of Class A-2 notes issues that will be split into two classes; and a $125.86 million Class A-3 tranche initially sized at $125.86 million.
Fitch Ratings has assigned an expected ‘F1+’ structured finance rating to the A-1 notes, and ‘AAA’ to the remaining senior bonds. A Class B tranche totaling $144.26 million is rated ‘AA’; Class C notes sized at $155.45 million are rated ‘A’; the Class D notes totaling $85.38 million carry a ‘BBB’; and the subordinate Class E notes issuance of $58.88 million is ‘BB’.
According to Fitch Ratings, the $1.178 billion in loans in the collateral pool is the largest among Santander’s transactions since 2014, edging out three of the deals that were between $1.175-$1.176 billion.
It also aligns credit-wise with those in Santander’s previous transactions dating back to 2014, with a weighted average FICO score of 600, average APR of 15.91%. But the latest deal includes the highest level to date of consumers with no FICO scores, at 18.7% of the pool.
The pool Santander is also limiting the concentration of 73-75 month term loans in its deals, in comparison to recent vintages. These six-year-plus loans comprise of 7.9% of the pool – higher than the 4.7% in Santander’s previous transaction (2016-2), but about half of its three prior transactions that ranged from 15.19% (2016-1) to 16.83% (2015-3) of the collateral.
Loans over five years account for 92.2% of the collateral, “towards the higher end of the range historically for the platform,” Fitch noted.
This comes as recent vintage (2013-2015) asset-backed portfolios constructed by Santander have been tracking higher losses, with loss frequency driven by “looser underwriting” and loss severity driven by the declining residual values of wholesale vehicle prices. Fitch predicts the 2015 and 2016 vintage ABS deals will perform down to the level of the 2013-14 variety, “if not weaker.”
Despite the loss performance – as well as the weaker corporate financials in recent quarters – Santander’s credit enhancement level of 49.7% for the Class A notes is down from the 49.85% Santander needed to supply to earn a triple A rating in four of its previous five deals.
Santander’s latest deal offers a greater weighted-average seasoning (5.56 months) than recent portfolios, through 68,377 notes with an average balance of $17,222. The average principal balance is the lowest among its previous nine securitizations.
In Exeter’s deal, the four-year, senior Class A notes sized at $281.55 million have a preliminary ‘AA’ rating from S&P, and carry a 42.25% credit enhancement support, below that of Exeter’s previous two deals due to a lower overcollateralization.
The remaining tranches include $69.5 million in Class B notes rated ‘A’; $53 million in Class C notes rated ‘BBB’; and $45.95 million in Class D notes rated ‘BB’.
Citigroup is the structuring agent for the deal, which is expected to close Oct. 12.
Like Santander, Exeter displays some improvements in underlying credit quality. The weighted average FICO of the pool grew to 575 from 570, in comparison to Exeter’s last deal (2016-2), and a greater percentage of loans with 600-plus FICO scores increased to 25.72% from 23.27%.
“In our view, the collateral characteristics for the series 2016-3 pool are stronger than those for the series 2016-2 pool,” noted S&P in a presale published Thursday. S&P lowered the expected cumulative net loss range to 18.5%-19.5% from the previous transaction’s range of 18.75%-19.75%.
In addition, the weighted average loan-to-value also decreased slightly to 110.34% from 11.84% - the lowest of any Exeter securitization to date, according to S&P.
However, there was a growth in non-FICO score loans to 7.87% of the pool, from 6.12%.
As of June 30, Exeter has indirect lending partnerships with 10,200 auto dealers, and a portfolio of 204,000 loans with approximately $3.1 billion in outstanding aggregate balances. Nearly a quarter of Exeter’s originations are through partnering CarMax dealerships.
Exeter is held by an indirect majority interest by three Blackstone investment funds. Navigation Capital Partners and Goldman Sachs & Co. owned minority stakes in the Texas lender.