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Surge in originations sources largest-ever GLS subprime auto ABS

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Indirect auto lender Global Lending Services is sponsoring its largest-ever securitization of deep subprime loans, reflective of its rapid growth in originations since 2017.

GLS Auto Receivables Trust (GCAR) 2019-2 is a $350 million transaction backed by a portfolio of loans totaling $405 million – topping a $299.4 million asset-backed offering in June 2018 with a pool of $327.2 million in new- and used-car loans that was its previous largest transaction.

The average 2.34-month seasoning means most of the loans were originated during the busiest quarter in the lender’s history – $453.2 million between January and March, following a fourth-quarter performance of $339.4 million in new loans, according to presale reports from Kroll Bond Rating Agency and S&P Global Ratings.

The Atlanta-based company has grown originations almost 60% annually between 2013 ($103.9 million) and 2018 ($1.06 billion), according to Kroll. Most of that growth surge occurred after the fourth quarter of 2017.

The $350 million in notes includes a $321.8 million Class A tranche with double-A ratings by Kroll and S&P. The senior notes are backed by 44.65% initial credit enhancement. GLS has earned AA ratings on its last three transactions since June 2018.

GLS will also market $58.4 million in Class B notes (rated A by both firms), $44.2 million in Class C notes (BBB) and $33.57 million in Class D notes (BB-).

The 97% year-over-year first-quarter growth in originations, along with better-than-expected loss performance in recent GLS securitization portfolios, were factors in S&P’s decision to maintain a loss expectation range of 19.25%-20.25%, equal to GLS’ first transaction of the year in February.

That is despite some slight credit deterioration in the deal compared to GCAR 2019-1, including a higher percentage of no-FICO score loans (6.75% of the collateral loan balance, up from 6.25%), a rising share of riskier used-car loans (71.6% from 67.9%) and a higher weighted average loan-to-value ratio of 117.89%, up from 116.84%.

Some improvements were noted; the latest transaction does have a higher weighted average FICO of 559, up from 556, and the proportion of loans with FICOs over 600 grew to 18.55% from 15.05% in this year’s first deal.

Kroll’s net loss range expectation range is 17.3%-19.3%, a slight decline from 17.4%-19.4% in GCAR 2019-1.

GLS’ securitization will be the fifth subprime auto deal to be launched in the market this month. Previously pricing deals since April 2 were First Investors Financial Services, Consumer Portfolio Services, U.S. Auto Finance and Exeter Finance.

Total subprime auto ABS volume for the year through April 16 (when the last deal to price) is $9.43 billion. Last year, lenders sponsored $15.5 billion in subprime auto loan securitizations during the first six months.

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Subprime lending Auto ABS