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Santander issues $1B auto ABS amid push to retain Chrysler ties

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A $1.04 billion auto loan securitization launched this week by Santander Consumer USA reflects the lender’s growing preferred-lender ties with Fiat Chrysler Automobiles (FCA).

It might also support chief executive officer Scott Powell’s newly expressed confidence that Santander can maintain and perhaps expand its captive-finance role – even if FCA follows through on plans to establish its own internal financing unit.

During a Jan. 30 earnings conference call , Powell said talks with Chrysler officials to maintain close ties were proving "constructive," and the Dallas-based lender would proceed into 2019 focused on expanding its loan, lease and dealer-floorplan originations for the automaker.

“We continue to operate under existing contracts,” Powell said, according to a Santander transcript of the call. “Our discussions with Chrysler are ongoing. I would say they are constructive, and we are talking about a number of things, including optimizing the contract that we have.”

“We aim to build on the progress made in 2018,” Powell added, “by remaining focused on optimizing our relationship, continuing to drive improvement in our FCA dealer satisfaction scores, and refocusing our efforts on loyalty programs, collaborating with FCA to drive another strong year of sales” for Chrysler.

Santander has had a preferred lender relationship through the Chrysler Capital joint venture with FCA that began in 2013. Last year, however, Fiat Chrysler confirmed plans to establish its own captive-finance arm, and entered talks with Santander to potentially buy out the lender's stake in Chrysler Capital (Santander owns a 70% stake).

With Chrysler originations accounting for one-third of Santander's originations, speculation mounted whether Santander Consumer would need to be merged into the Santander U.S. retail bank's holding company, Santander Holdings USA, if it pulled out of Chrysler Capital.

But during the conference call, Powell told analysts that the soaring levels of originations through Chrysler Capital has the lender's management optimistic that the five-year-old relationship is not only salvageable, but can be expanded.

"I wouldn’t presume to speak for Chrysler," Powell said, "but I think the progress we made over the last year is pretty significant. They had, as I said and you know, they had a really solid sales year. The company is doing really well and I think that is part of the discussion.”

During the call, Powell and chief financial officer Juan Carlos Alvarez each pointed to the growth in Chrysler loans (up 63%) in 2018, plus a 43% gain in lease contract originations that were shifted to Santander's affiliated bank cousin last July.

Santander Consumer also made a 43% gain in capturing the floorplan financing business through the Chrysler dealer network, and drove up its penetration rate of all Chrysler new-car originations among all lenders to 30%, up from 21% in 2017.

Santander’s originations were also up 43% in 2018 to $28.8 billion from $20.2 billion in 2017.

According to ratings agency presale reports, the Santander Drive Auto Receivables Trust (SDART) 2019-1 will pool a large segment of Chrysler vehicles funded through the Chrysler Capital unit that Santander jointly runs with FCA. In particular, the Dodge pickup and Jeep sport/crossover utility vehicle lines make up approximately 40% of the collateral mix.

The percentage of trucks/SUVs has also increased dramatically, to 64.1%, from 44.4% for the prior SDART issuance last October (SDART 2018-5). The decline in passenger car exposure (35.9%) reflects the continuing industry slide in consumer demand for sedans.

The SDART 2019-1 transaction has seven classes of notes, similar to Santander’s previous SDART deal as well as January’s $1.03 billion Santander Drive Auto Receivables (DRIVE) Trust 2019-1 that kicked off Santander’s subprime ABS issuance this year.

A Class A-1 money-market tranche is sized at $172.5 million, with a preliminary F1+ rating from Fitch Ratings and A-1+ from S&P Global Ratings. Two fixed/floating rate tranches of Class A-2 notes due January 2022 total $231.1 million, and share a triple-A rating with a $133.57 million Class A-3 tranche of fixed-rate notes that mature in December 2022.

Class B notes totaling $121.35 million are rated AA; a Class C tranche sized at $149.74 million carries a single-A Fitch rating and an 'A-' S&P rating; while the $133.59 million Class D notes are rated BBB (Fitch)/BBB- (S&P).

The senior notes benefit from hard initial credit enhancement of 52.75%, unchanged from last October’s deal. Also unchanged are expected loss levels to the transaction: Fitch’s base-case loss proxy is 17%, the same as DRIVE 2018-5 but 0.4% higher than the 2018-2 deal that Fitch previously rated. S&P has an expected net loss range of 15.75%-16.5%, similar to SDART 2018-5.

Both Fitch and S&P reported the collateral quality of the pool for the SDART 2019-1 transaction is similar to recent deals: an average FICO of 615, a weighted-average loan-to-value ratio of 106.9%, loan APR of 15.2% and seasoning of four months.

The transaction pools 53,866 loans with an average outstanding balance of $1.113 billion ($20,668 per account).

Nearly 94% of the loans are extended-term loans over 60 months, “which is toward the higher end of the range for the platform,” wrote Fitch. There was a 17.4% share of 73-to-75 month loans in the pool, all originated through Chrysler Capital. While the seven-year loan exposure factored in to Fitch’s loss proxy, that 17.4% share was lower than recent deals.

Santander’s latest SDART deal is just one of four new subprime deals to hit the market this week, according to presale reports. Westlake Services LLC is marketing an $800 million, triple-A rated offering (DBRS, S&P) of used-vehicle contracts in its 16th overall securitization since 2010.

Credit Acceptance Corp. is sponsoring a $503.1 million deal with triple-A senior note ratings from Moody’s Investors Service and S&P, and Global Lending Services – which is backed by BlueMountain Capital Management – is seeking to place $268.4 million in notes topping out with senior-note double-A ratings from Kroll Bond Rating Agency and S&P.

Year-to-date, $2.74 billion in U.S. auto subprime securitization have been publicly placed by Santander, Consumer Portfolio Services, Exeter Finance, DriveTime Car Sales and Flagship Credit Acceptance Corp.

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Auto ABS Subprime lending Santander Consumer USA