Four subprime auto lenders, Santander Consumer, Westlake, Credit Acceptance Corp. and Flagship are in the market with a total of more than $1.5 billion in asset-backeds this week. All are tapping the securitization market for funding for the third time this year, or, in the case of Santander, the fourth time.
Westlake exposure to Ally-sourced loans increases
Westlake Financial Services’ $800 million offering is backed by a higher percentage of loans originated through a strategic relationship with Ally Bank that began this year, whereby Westlake can compete for applicants that don’t meet Ally’s underwriting criteria. Ally sourced originations totaled $145 million through June 2018 and represent approximately $93 million, or 10% of the collateral for the new deal, according to Kroll Bond Rating Agency.
In its presale report, Kroll described the Ally relationship as a “positive development in that it provides another source of loan applications and access to a higher quality borrower than Westlake would review without this relationship.” However it cautioned that the program “is new and has less performance data than Westlake other programs.”
The loans in the pool have a similar weighted average FICO score (601 vs 601) and weighted average loan-to-value ratio (108.64% vs 108.39%), though the weighted average contract rate is slightly higher (19.33% vs 19.26%).
Despite the higher interest rates on the collateral, the excess spread in the deal has actually declined from the previous deal, because the sponsor has increased the weighted average coupon on the notes being offered by 1.1%.
Kroll expects to assign an AAA to the senior tranches of term notes, which benefit from initial credit enhancement of 43.25%. It will also assign ratings ranging from A+ to B+ to five tranches of subordinate notes.
Santander boosts credit quality of borrowers in SDART 2018-4
Santander is issuing $1 billion of bonds from its Santander Drive Auto Receivables Trust (SDART), which is backed by higher quality, or nonprime borrowers. (Not to be confused with the Santander’s Drive Auto Receivables platform for deep subprime loans.) Moody’s Investors Service expects to assign ratings ranging from Aaa to the senior tranches of term notes to Baa2 to the most subordinate tranche of notes.
The loans backing SDART 2018-4 have a weighted average FICO of 623, which is the highest of all SDART transactions, and a weighted average loss forecasting score of 553, which is consistent with recent SDART transactions, according to Moody’s.
Less loan seasoning for Credit Acceptance Corp.
Credit Acceptance Corp. is issuing $398 million of notes across three tranches that Moody’s Investors Service expects to rate Aaa, Aa2 and A2.
The company is viewed as lender of last resort, according to Moody’s. The initial pool of loans backing the 2018-3 deal has a weighted average FICO of 549. While that’s in line with the sponsor’s other recent deals, the loans backing the latest transaction have less seasoning, just seven months, on a weighted average basis, down from 14 months for the prior two deals and the lowest level of any CAC deal for the past two years.
Moody’s expects losses to reach nearly a third (27%) of the principal balance, the highest level level for any auto loan-backed securitizations it rates.
The transaction is scheduled to revolve for 24 months, during which time CAC can add more loan, potentially of even weaker credit quality – there are limited collateral concentration limits.
The transaction’s key credit strengths, according to Moody’s, include CAC's unique risk-mitigating business model, history of accurately forecasting collections and full turbo amortization structure.
The transaction benefits from a high level of excess collateral. The $398 million of bonds being issued are backed by just over $500 million of loans, resulting in overcollateralization of roughly 20%.
Kroll lowers loss CNL expectations for Flagship
Flagship Credit Acceptance is issuing $297.3 million of notes with ratings from Kroll that range from AAA to BB. Initial credit enhancement ranges from 41% for the senior tranche of notes to 3.25% for the most subordinate tranche.
The collateral for the transaction has a slightly higher FICO, lower expected spread and the same credit enhancement as Flagship’s previous transaction. As with prior deals, Flagship has yet to acquire all of collateral; there is a two-month prefunding period during which it will purchase the remaining 20%.
In additional, the new deal contains a slightly higher portion of loans with original terms of over 72 months, though it is still small (0.74% vs 0.65%).
Kroll has lowered its base-case expectations for cumulative net losses to a range of 11.95% - 12.95% from a range of 12.05% - 13.05% for the prior deal, due to improved performance of the lender’s managed portfolio.
