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Santander pays up for AAA on its next subprime auto ABS

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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 initial 2019 DRIVE issuance in January, according to ratings agency presale reports.

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 backing the $1.13 billion SDART transaction in February.)

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.

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