Some Credit Metrics Slip in Exeter's Latest Subprime Auto ABS
Exeter Finance Corp. took steps to reduce the risk in its first subprime auto loan securitization of 2017, completed in January.
For its follow-up deal, launched this week, the indirect lender has shifted slightly into reverse.
The collateral for $450 million Exeter Automobile Receivables Trust 2017-2 pools fewer new-car loans and has a higher percentage of borrowers with very low credit scores, as measured in Exeter’s own scoring model.
New vehicles comprising just 19.92% of the collateral pool, down from 23.97% for the previous deal.
Borrowers with scores below 201 account for 16.58% of the $541.8 million collateral pool; that’s up from 11.84% of the collateral in the January deal. Dating back to 2012, the percentage of borrowers in this credit tier had never exceeded 12.05%.
The percentage of consumers with no FICO score, 8.17%, is also at an all-time high in the latest deal.
Exeter hasn’t let all of the credit metrics slip, however. The weighted average loan-to-value ratio of 110.53% for the latest deal is in line with prior transactions. And the latest deal has the highest-ever concentration of loans with LTVs under 105% (33.94% of the collateral balance).
Another plus, according to DBRS, is that recent tightening of underwriting criteria appears to be having the desired effect: losses on loans originated in mid-to-late 2016 are lower than losses on loans originated in mid-to-late 2015. Over 98% of the loans in the latest pool were originated since the beginning of 2016.
Nevertheless, DBRS expects losses on loans backing the latest deal to reach 21%, up from its forecast of 19.65% for the deal completed in January.
The structure of the latest deal is similar to that of the one completed in January; the trust will issue four classes of notes, including a $262.2 million senior tranche with a preliminary AAA rating from DBRS. These notes benefit from initial credit enhancement of 46.5%, up from 44.35% initial for the senior notes issued in the January transaction.
S&P Global Ratings has issued a early 'AA' rating for the notes, in line with its previous ratings for Exeter's portfolios.
Citigroup is the lead structuring manager on the transaction.
Exeter, headquartered in Irving, Texas, is majority owned by The Blackstone Group.