Santander Consumer USA is pooling a slightly weakened pool of high interest-rate auto loans in a second billion-dollar securitization this year from its deep-subprime platform.
The $1.015 billion Drive Auto Receivables Trust (DRIVE) 2019-2 collateral pool has a lower weighted average FICO of 579 and lighter seasoning of just one month, among other deficiencies compared to Santander’s
That deal had a WA FICO of 584 and four months of seasoning. Santander is also including fewer new-car loans (35.14%, down from 38.9%) plus the largest-ever collection of extended-term loans in a DRIVE deal: 81.12% of the collateral pool consists of 61- to 72-month loans, according to Moody’s Investors Service and S&P Global Ratings.
Santander’s new deal has higher expected loss projections by both ratings agencies, with S&P citing the “slightly weaker” credit metrics to increase its forecast of lifetime loss ranges from 24.25%-25.25, up from 24%-25% in January’s deal. Moody’s expects losses of 25% in losses, up from 24% for the 2019-1 pool.
The triple-A rated capital stack in the DRIVE 2019-2 transaction includes a $316 million Class A-2 tranche split between fixed- and floating rate notes due March 2022, and a $159.72 million Class A-3 notes tranche due March 2023. Santander also will market a $128 million senior-note money-market tranche rated A-1+ by S&P and P-1 by Moody’s.
The deal has three subordinate tranches: a Class B notes issue due November 2023 totaling $123.49 million, with a preliminary Aa1 rating by Moody’s and AA by S&P; a $169.88 million offering of Class C notes due June 2025 (rated A2/A); and $118.26 million in Class D notes due August 2026 totaling $118.26 million (rated Baa3/BBB).
The notes are backed by 62,886 of Santander's auto loan originations with an outstanding total balance of $1.3 billion, an average balance of $21,044 per account and a weighted average APR of 18.99%.
With the weaker credit standing, Santander is including slightly higher initial credit enhancement level of 54.8% on the senior notes, down from 54.5% in the prior deal but well below the range of 61.5%-75.85% for the platform’s prior deals.
Despite taking the shine off Santander's newest deal, S&P considers Dallas-based Santander Consumer’s DRIVE platform among the best-performing ABS trusts in cumulative loss performance in the deep subprime ABS space (which include DriveTime Automotive Group and American Acceptance Corp.).
Last October, S&P lowered expected net losses on several outstanding DRIVE transactions because of a “better-than-expected” performance on the platform since it debuted in 2015.
Santander uses the DRIVE platform to securitize its higher-risk loan originations apart from the near-prime and prime loans on the longer-established Santander Drive Auto Receivables Trust (SDART) shelf. (Santander Consumer had a WA FICO of 615 and average APR of 15.2% for the pool
The Dallas-based lender is the largest issuer of subprime auto-loan securitizations, having sponsored $11.2 billion last year across 10 DRIVE and SDART transactions.
When DRIVE 2019-2 closes, Santander Consumer will have issued one-third of the year-to-date subprime auto ABS volume of $6.4 billion, according to regulatory filings. Subprime lenders sponsored $7.3 billion in 15 deals in the first quarter of 2018.
Santander’s managed portfolio of serviced auto loans grew to $26 billion by year's end. Delinquencies were up slightly at 17.31% from 17.25%, and losses decreased to 9.32% from 9.7%, according to the ratings agencies.
The DRIVE 2019-2 transaction was structured by RBC.
