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Subprime borrower pool expands in latest Foursight auto-loan ABS

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Foursight Capital has added its highest-ever proportion or lower-rated subprime borrowers for its next nonprime retail auto-loan securitization.

The non-prime Foursight Capital Automobile Trust 2019-1 transaction – Foursight’s fourth asset-backed deal since being founded in 2012 – has a 36.6% share of subprime-tier borrowers of its lower-tier indirect loan programs through dealerships. That is a 10.6% surge over the proportion in its last deal, according to presale reports from Moody’s Investors Service and DBRS.

Because of the overall weaker collateral, Moody’s Investors Service has issued a 9.5% cumulative net loss expectation to the $227.4 million transaction. That compares to just 9% for the previous Foursight 2018-2 transaction last fall.

DBRS' 8% cumulative net loss expectation is also greater than the 6.14% it assigned Foursight's previous deal. DBRS cited other weak aspects of the collateral pool, including the lack of seasoned called collateral that was part of the 2018-2 deal as well as the inclusion of its lowest-tier "Greenlight" loan program to the collateral. The Greenlight loans carry third-party insurance paid out-of-pocket by Foursight.

The pool includes loans considered prime (17.52% of the collateral balance) and near-prime (45.87%). The weighted average FICO of the transaction is 655, lower than the 659 level of its previous transaction. WA loan terms are 71 months, with 89% of the terms greater than 60 months. Seasoning is just 1.7 months, lower than previous deals due to the lack of previously securitized loans from called deals.

The deal features a prefunding account in which Foursight will purchase an additional $57 million in collateral, or 25% of the final $150.18 million loan pool at closing.

The transaction includes two classes of term senior notes totaling $86 million (Class A-2) and $40.3 million (Class A-3), which carry preliminary triple-A ratings from both agencies. Those notes, along with a $24.9 million money market tranche rated R-1(high) by DBRS, benefit from 34.5% credit enhancement.

The transaction also includes 5 subordinate tranches making up $67.6 million, or 29.8%, of the collateral pool. The Class B, C and D notes carry investment-grade ratings ranging from double-A to triple-B from each agency; the Class E notes and F notes carry speculative-grade double-B and single-B ratings.

JPMorgan is underwriting the transaction.

Foursight is headed by former executives with Franklin Capital, a non-prime auto-loan originator from the 2000s. Moody’s considers the small, monoline finance specialist a “weak” entity, but the trust enlists Citibank as a backup servicer, and a performance guarantee from parent Jefferies Finance Group (formerly Leucadia National Corp.).

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Subprime lending Auto ABS