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Subprime auto lender returns to single-A rating in $240.8M ABS

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A California-based subprime auto lender is stepping down to a single-A senior-note rating in its third overall securitization since 2017.

Veros Credit LLC received a preliminary A rating from Kroll Bond Rating Agency and an equivalent A1 rating from Moody’s Investors Service. For the senior notes in a $240.5 million asset-backed offering through its fledgling securitization trust platform.

Veros Auto Receivables Trust 2020-1 will market $159.3 million in Class A notes, and approximately $81 million in three classes of subordinate notes.

The Class A notes’ single-A rating compares to an AA rating the privately owned indirect auto loan lender received in its 2018-1 transaction. The primary difference, according to Kroll, stem from the lower credit enhancement levels (37.25% for the Class A notes), plus the higher weighted-average loan-to-value ratios (122%, up from 119%) and average loan balances ($14,133 vs. $11,659) against the prior deal.

Kroll has raised its base-case loss scenario to 21.4%, from 17.3% for Veros 2018.1.

“The 4.05% increase in KBRA’s base case loss expectation is predominantly due to an increase of KBRA loss expectation for each risk category and to a lesser extent a small shift to lower FICO buckets,” Kroll’s report stated.

Moody’s estimates cumulative net losses will be 23%.

Veros, based in Santa Ana, Calif., finances 50%-60% of the 14,000 applications it receives from independent auto dealers each month for primarily used cars (99.7% of the Veros 2020-1 pool). The 16,173 contracts have an average APR of 21.38%, 57-month original terms and six months of seasoning.

Veros’ loans are typically $5,000 to $25,000 contracts, with original terms of 36-66 months and APRs between 15% and 26%.

The loans total $228.6 million, but Veros will have a three-month prefunding period after closing to include additional auto loans that mean minimum criteria, up to 7.8% of the initial pool balance.

Moody’s notes that while the firm operates in 19 states with a network of 1,332 automobile dealerships, the pool has a high regional concentration with 54% of the loans issued in California.

The company had a managed portfolio of $372 million as of Dec. 31, and will retain servicing on the loans included in the Veros 2020-1 pool (and employing Vervent – formerly First Associates – as the backup servicer).

Deutsche Bank is lead underwriter.

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Auto ABS Subprime lending