A pool of subprime auto loans on new and used vehicles is securing the GLS Auto Receivables Trust, 2022-2, which is slated to issue $694.3 million in notes.
JP Morgan Securities is the structuring lead manager on the transaction, which will issue notes through a senior-subordinate sequential-pay structure. Global Lending Services originated the loans and is sponsoring the securitization, for which it is also acting as seller, custodian and servicer, according to Kroll Bond Rating Agency.
The notes will benefit from overcollateralization—initially 8.9% of the cut-off pool balance. That level will increase to a target equal to the sum 12.5% of the current pool balance, plus 1.5% of the cut-off pool balance.
A cash reserve account and excess spread comprise other forms of credit enhancement. The former is funded at closing with an amount equal to about 1.0% of the pool balance as of the cutoff date. As for the excess spread, that amount is set at about 7.4%, an amount based on a weighted average (WA) interest rate of 15.5%, minus 3.0% gross servicing and backup fee, and a 5.1% bond coupon, according to KBRA.
The rating agency expects to assign a rating of K1+ to the $76.3 million, A-1 notes. For the rest of the deal, KBRA expects to assign ratings ranging from ‘AAA’ on the $284.7 million, class A-2 notes, through ‘BB-’ on the $55.2 million, class E notes.
S&P Global Ratings expects to assign ratings of A-1+ on the A-1 notes through ‘BB-’ on the class E notes, the rating agency said.
Founded in 2011 and majority-owned by Assured Investment Management, Global Lending Services originates loans through franchise and independent auto dealers. The company has been profitable since 2017, serving a target customer base of borrowers who generally have credit scores ranging from 470 to 620. As of the April 30, 2022 cutoff date, the loans had a weighted average (WA) FICO score of 576.
KBRA cited several aspects of Global Lending Services’ operations that are potential credit positives. The company relies on automated underwriting to originate 100% of its loans, which improves efficiency and consistency in the loan application process.
