Santander raises curtain on revolving ABS platform

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Santander Consumer USA is sponsoring a $989 million subprime auto loan securitization that represents the lender’s first deal involving a non-static, revolving pool of retail installment-loan collateral.

Santander Revolving Auto Loan Trust 2019-A is the debut deal on Santander’s revolving platform (or SREV, according to presale reports), and will have a five-year period in which the lender can add additional loans to the collateral of older loans are paid down or transferred out of the trust.

The loans in the current pool have either been originated or acquired by Santander Consumer USA through purchase agreements with partnering auto dealerships, and are serviced by the U.S. retail lender subsidiary of Spanish banking group Banco Santander S.A. Santander has collected the loans from its $26 billion portfolio of non-prime serviced loans, which have experienced growing losses in the past year.

Revolving platforms are standard for lenders’ dealer financing securitization programs, but few sponsors offer investors bonds on revolving pools of retail auto-loan contracts. Ford Motor Credit regularly issues deals through its Fort Credit Auto Owner Trust (Rev) platform that has issued deals that allow new collateral from five to seven years after closing.

Subprime lender OneMain Financial also sponsors a revolving trust for its auto-loan transactions, but those accounts are typically renewable loans that borrowers refinance during the original term of the deal to extract cash equity from their vehicles. Santander is the leading subprime ABS issuer in in the U.S. market, having priced seven deals totaling $7.4 billion year-to-date among four other asset-backed platforms for subprime loan and lease contracts.

In its presale report, Moody’s Investors Service stated the credit quality of the SREV pool is “in between” that of Santander Consumer’s existing subprime near-prime ABS and deep-subprime ABS shelves.

For example, the 616 weighted average FICO for the SREV 2019-A revolving pool is within the range of 600-623 for recent Santander Drive Auto Receivables Trust (SDART) deals, but higher than the 579-387 range of the Drive Auto Receivables Trust (DRIVE) platform Santander reserves for its higher-risk subprime collateral.

Although new loan collateral added to revolving pools can expose investors to potentially weaker collateral, the portfolio will have to maintain ongoing credit-enhancement pool-composition tests to defray any credit deterioration of the collateral.

Loans will have to meet minimum eligibility criteria to be included as a protection for investors. In addition, Santander will carry over from its other subprime ABS platforms a pledge to repurchase early defaulted accounts from the pool, and will apply a turbo-pay feature that will apply excess spread to amortization of the notes in SREV 2019-A.

Santander this year also shifted its delinquency policies to provide uniform standards for late-pay treatment across all its securitization channels. Any loan in which a buyer pays less than 90% of a scheduled payment is considered delinquent.

A portion of the loans were originated by Santander through its Chrysler Capital unit, a private-label financing operation working with Fiat Chrysler Automobiles under a 10-year agreement.

Santander will market a total of $751.6 million in notes in the transaction. Santander is overcollateralizing the deal by 24%, or $237.36 million, as a cushion against possible principal losses for noteholders.

Both Moody’s and S&P Global Ratings have applied preliminary triple-A ratings to the $450 million in Class A notes (which have an extended final legal maturity of January 2032). Those senior notes, representing loans totaling 45.5% of total assets, benefit from 55.5% credit enhancement.

The Class B notes tranche sized at $71.7 million is rated Aa2 by Moody’s and the equivalent AA by S&P; the Class C notes totaling $113.74 million carry Moody’s A1 rating and S&P’s A rating; and the $116.21 million in Class D notes are rated Baa3/BBB.

The opening pool will have $1.34 billion in loans with an average balance of $20,163. The loans have similar average original terms of 72 months but have higher seasoning at nine months compared to SDART and DRIVE deals.

Moody’s cumulative net loss expectation is 20%, while S&P’s expected loss (assuming a worst-case pool mix) is 26%.

JPMorgan, Barclays, Citigroup and Santander are serving as lead underwriters.

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