Santander Consumer USA is smoothing out risk factors in its latest deep-subprime vehicle loan securitization.

Drive Auto Receivables Trust 2016-C is a $1 billion offering of deep-subprime new and used retail auto and light-truck loans originated by Santander.

The trust is ussing three Class A notes series in the transaction: a money-market tranche of $141.33 million in bonds; and two triple-A rated senior note classes (A-2, A-3) totaling $216.38 million and $114.84 million, respectively. Both Standard & Poor's and Moody's Investors Service have rated the deal.

The portfolio – the seventh all-time of the DRIVE platform – will also include $150.33 million in subordinate Class B notes due 2020 rated ‘AA’  by S&P and 'Aa1' by Moody's; $189.54 million in Class C notes due 2021 (‘A’/'Aa3') and $187.58 million in eight-year Class D notes (‘BBB’/'Baa3').

The Class A notes carry 65.85% initial hard credit enhancement, consisting of 40.35% subordination, a 23.5% initial overcollateralization (a target of 33.5%) and a 2% initial reserve fund.   

The transaction is to close on Nov. 22.

Drive 2016-C’s initial pool size of $1.3 billion is below that of previous 2016-B portfolio with $1.58 billion in loans, but the fourth highest of the seven most recent Drive issuances. The differences from the prior 2016-B transaction include a decreased excess spread to 11.53% from 11.63%; and the target overcollateralization increased to 33.5%, up from 31.5%, according to S&P.

The average principal balance is $18,034 and weighted average annual percentage rate is 18.98%, the lowest of any of its DRIVE deals in the past two years. The average original term (also weighted) is 71 months, with three months of seasoning prior to being added to the collateral pool. Nearly 68% of the loans are for used vehicle, which is the lowest of any of its recent portfolios.

The percentage of the borrowers with no FICO decreased to 15.42% from 20.95%, and the percentage of longer-term 73-75 month loans decreased “marginally” to 4.94% form 5.03%, according to S&P.

The weighted average loan-to-value ratio increased to 108% from 107.6%. The weighted average FICO score is 551. The trust had its fewest number of loans issued to borrowers with no FICO score (only 15.42%, compared to over 20% for its last portfolio. But more than 16 percent scored 601 or higher, and had an interval weighted average internal test score of 469.

The DRIVE platform is for the deep subprime assets that Santander originates that do not qualify for ints Drive Auto Receivables Trust (SDART) platform for mid-prime loans nor its Chrysler Capital Auto Receivables Trust (CCART) platform.

According to S&P, Santander Consumer’s $26.13 billion managed portfolio of weakened slightly year-over-year in the second quarter with increased delinquencies and net losses. Delinquencies over 31 days increased to 14.78% from 12.45%; and annualized losses as of June 30 were 8.1% vs. 5.57%.

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