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Subprime auto pipeline includes debut ABS issuer

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New subprime auto securitization activity this week includes a debut issuer, plus rising levels of risk in one of the dominant lenders in the space.

According to Kroll Bond Rating Agency, First Help Financial of Newton, Mass., is sponsoring its first-ever $143.24 million rated term asset-backed transaction backed by indirect, “second-look” new- and used-auto loans to consumers with limited or blemished credit history.

The pool of loans collateralizing the deal total $150 million, with an average balance of $17,814 per account. The WA coupon is 17.9% on original terms averaging 59 months. The loans are well-seasoned at 11 months, and have primarily financed vehicles through franchise dealerships (77.72% of the pool).

The loans are also mostly secured by new vehicles (77%), with a loan-to-value ratio of 101.88%.

Kroll has issued a preliminary AA rating to the $108 million Class A tranche benefiting from 30% credit enhancement; an A rating to the $22.5 million Class B tranche; and a BBB to the $12.75 million Class C notes.

Kroll has an estimated cumulative net loss range of 7.8%-9.8%.

Also this week, General Motors Finance is sponsoring its second asset-backed deal involving subprime vehicle loans through its AmeriCredit ABS shelf.

The $1.1 billion AmeriCredit Automobile Receivables (AMCAR) Trust 2020-2 transaction has similar collateral features to recent AMCAR deals, such as a weighted average FICO of 591, the WA APR of 11.88% and a high percentage of extended term loans between 61-72 months (77.44%).

However, ratings agencies are projecting higher net losses compared to its previous deal this year due to recent worsening trends in 2019 vintage AMCAR deal performance, plus the first-time addition of loans with up to eight-year (84 month) loan terms into the collateral of an AmeriCredit securitization.

There is also the likely surge in delinquencies and contract extensions across the subprime auto lending sector, as more troubled borrowers emerge who are affected by the COVID-19 economic fallout.

S&P Global Ratings has expected losses of 12%-12.5%, compared to 10% (Moody’s Investors Service) and 11% (a base-case loss proxy for Fitch Ratings) had for AmeriCredit’s prior deal in May.

Fitch has raised its forward-looking CNL proxy to 11.25% for the 2020-2 deal.

The new deal features two Class A term note tranches with preliminary AAA ratings from Fitch and S&P: the two-year maturity Class A-2 notes will total $390 million, and split between fixed- and floating-rate tranches, while the Class A-3 notes due December 2024 are sized at $183.2 million.

Those tranches, plus a Class A-1 money-market series of notes totaling $180 million, benefit from 34.35% credit enhancement. The Class A-1 notes feature preliminary short-term F1+ (Fitch) and A-1+ (S&P) ratings.

Santander Consumer USA is sponsoring its second ABS transaction of subprime loans this year, as well. Santander Drive Auto Receivables Trust (SDART) 2020-2 is a $1.34 billion deal (with a potential upsizing to $1.68 billion), also carrying early triple-A senior-note ratings – this time from Fitch and Moody’s.

Moody’s expected CNL on the deal is 18%, unchanged from the prior SDART deal issued in May, to account for the economic disruption and “likely” deterioration in pool performance associated with the coronavirus pandemic.

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