Investors are currently being asked to digest nearly $5 billion in auto-related, asset-backed securities (ABS) from five issuers with a variety of strengths and weaknesses to mull.
Most securitizations of floating-rate loans have continued to price their notes over Libor, despite the requirement to price new transactions over a Libor-replacement rate staring next year. Hyundai Capital’s third auto-receivables securitization this year aims to price up to a third of a $500 million tranche rated AAA by S&P Global Ratings, leaving the remainder fixed rate.
The other five tranches of the $1.5 billion Hyundai Auto Receivables Trust 2021-C transaction are slated to be fixed, including $290 million in short-term debt rated ‘A-1+’ and $46 million in subordinated debt rated ‘AA-‘. The floating-rate notes are anticipated to be priced over 30-day average of overnight SOFR that is compounded in advance, according to S&P Global Ratings’ S&P pre-sale note published Nov. 3, which notes that the spread over SOFR will be the total credit risk of the transaction and will not contain the layer of bank credit risk accounted for in Libor.
In addition, there’s language in the securitization documents that govern the selection of another rate should SOFR become unavailable.
Also approaching the market is $850 million securitization from Exeter Finance, its fourth auto receivables securitization this year. Moody’s Investors Service notes several strengths, including Exeter’s experienced management, which will remain in place after the acquisition of Exeter by Warburg Pincus closes later this year.
The rating agency also notes the deal’s improved credit quality of the collateral compared to its previous deal, and the buildup of credit enhancement as the loan pool amortizes.
However, Exeter, which is sponsoring and servicing the deal, has a relatively low rating of ‘B2’ by Moody’s.
“A transaction with a financially weak servicer and sponsor lends additional variability to the expected loss scenario because their default probability is unknown,” the Moody’s Nov. 3 report says.
AmeriCredit Financial services is approaching the market with a $956.5 million auto-receivables securitization of primarily non-prime retail installment loan contracts originated by AmeriCredit, a wholly owned subsidiary of General Motors.
The deal comprises seven tranches of rated notes, ranging from a $144.6 money market tranche rated ‘P-1’ by Moody’s to a $27.7 million, ‘Baa3’-rated piece, as well as $55 million in overcollateralization.
Moody’s notes the experience of servicer AmeriCredit and the resilience of its deals through economic downturns, as well as the buildup of enhancement as the pool amortizes. Challenges, it adds, include the high proportion, 93.7%, of longer-term loans with original terms between 61 and 84 months, as well as the non-prime quality of the collateral.
Another risk cited for AmeriCredit as well as the other auto receivable deals is the potential decline of used car prices.
“Despite the recent soar in used car prices as a result of pent-up demand and shortage of new vehicle supplies, used car prices remain at risk of falling should there be large volumes of leased vehicles reaching the end of their terms as well as demand subsides,” Moody’s says.
Also on investors’ radar screens is a $1.2 billion auto receivables transaction from Toyota Motor Credit Corp., its fourth securitization this year. It is backed by a pool of fixed-rate motor vehicle retail installment sales contracts secured by new or used cars.
Avis Budget Car Rental, meanwhile, has launched a $500 million, four-tranche securitization backed by a single lease of the fleet to the sponsor for use in it rental car business, according to Moody’s. The rating agency says the deal’s credit challenges include the non-investment grade sponsor and the inclusion of a 10% concentration limit for vehicles manufactured by Tesla, which allows the sponsor to add Tesla electric vehicles to the fleet over time.
