Santander Consumer USA is marketing its fifth subprime auto loan securitization of the year, and the percentage of loans with longer terms keeps growing.
The $1.05 billion Santander Drive Auto Receivables Trust 2014-5 is backed by "marginally" weaker collateral versus its prior two deals, according to Fitch Ratings. The weighted average loss forecast score is 556 and the weighted average FICO score is 598. The weighted average seasoning of the loans is two months, new vehicles total 36%, and the pool is geographically diverse.
However loans with terms of 60+ months rose to 93.9%, which Fitch said is the highest to date, driven by a notable increase in 73−75-term loans, totaling 15% of the collateral. Fitch applied a stress to the loss proxy to account for the risk posed by these loans since they are not seasoned and perform weaker than loans with 72-month terms or less.
Longer term loans are considered riskier because they amortize more slowly. And since automobiles lose value as soon as consumer’s pull out of a dealership’s parking lot, the longer the loan, the more time the borrower spends “underwater,” with more debt than equity in the car, and the greater the risk of losses to the lender in the event of default.
The trust will issue a $176.3 million money market tranche and two classes of longer-dated notes with preliminary AAA’ ratings from Fitch Ratings: a $333 million tranche maturing in April 2016 and a $123.05 million tranche maturing in January 2019. Credit enhancement for all three tranches is 48.25%.
Citigroup Global Markets is the lead underwriter.
In Santander’s previous deal, completed in September, 89.82% of the loans had terms of 61-75 months, and that was up from 84.4% in a deal completed in June. The 1.8-year class A-3, AAA’ rated issued in September priced at 35 basis points over the eurodollar synthetic forward curve.