Santander, a regular presence in the auto asset-backed securities (ABS) market, is preparing to issue $2 billion in notes through a credit-linked note structure.
Santander Bank Auto Credit-Linked Notes, 2023-B, is the second deal of its kind that Santander Bank will bring to the market this year, according to ratings analysts from Moody's Investors Service. SBNA, which originated the prime-quality loans, will transfer the risk to noteholders through a hypothetical financial guaranty on a reference pool of fixed-rate auto installment contracts with prime borrowers.
New and used automobiles, heavy- and light-duty trucks, sport utility vehicles and vans secure the loans in the collateral pool, Moody's said. Some 18% of the loans finance Tesla vehicles. Tesla, coincidentally, is sponsoring a standalone transaction due out later this month, also backed by prime auto loans, the
J.P.Morgan Securities and Santander U.S. Capital Markets are lead underwriters on the deal.
A cash collateral account secures the principal payments, which makes SBNA's credit-linked notes deal a bit different from other bank-sponsored credit-linked note deals—albeit similar to SBCLN 2023-A, Moody's said. Cash proceeds from the initial sale of notes will be held in a collateral account with a depository institution that Moody's rates at least A2 or P-1, initially Citibank.
The presence of the cash collateral meant that Moody's did not cap the rating of the notes at the sponsor's rating, it said.
"If SBNA defaults on its payment obligations, the transaction would unwind and the cash collateral would be used to make the final payments that the trust owes the noteholders," analysts wrote in the pre-sale report.
Moody's puts its cumulative net loss on the SBCLN 2023-B asset pool at 3.00%, and the loss at a 'Aaa' stress is 12.00%, 0.75% and 3.50% higher than SBCLN 2023-A, respectively.
The rating agency expects to assign ratings of 'Aaa' to the A2 notes; 'Aa3' to the class B notes; 'A3' to the class C notes; 'Baa3' to the class D notes and 'Ba3' and 'B3' to classes E and F.
The deal has a couple of main credit challenges, including a modified pro-rata structure, with principal payments allocated from class A through class G based on the respective senior and subordinate percentages. Payments to subordinate notes are subject to an additional performance test and cumulative loss trigger.
