ThunderRoad Financial, a motorcycle loan company founded two years ago by former Harley-Davidson financing executives, is looking this week to price its first-ever securitization of bike-loan originations.
Morningstar has issued preliminary ratings on a small pool of $59.7 million in prime- and subprime-rated motorcycle loans through ThunderRoad Motorcycle Trust 2016-1.
The transaction includes a Class A series of six-year notes totaling $47.78 million, with an early ‘A-’ rating from Morningstar, and a Class B tranche with $11.94 million in seven-year unrated notes. The deal was arranged by Piper Jaffray & Co., and is expected to close Friday. No price has been set on either notes class.
The Class A notes include 26% credit enhancement, served by a 20% subordination of the Class B notes, 4% excess spread and a 2% reserve account sized at six months of Class A bond interest. The soft CE includes a 5.5% overcollateralization that ThunderRoad intends to fund through the payments waterfall.
ThunderRoad was launched by former executives of Harley-Davidson Financial Services in 2014. The company originates loans through a network of franchised and independent dealers, and is growing loan volume quickly. In 2015, the company’s average monthly loan volume nearly tripled (2.9x) from 2014, from 1,510 loans in its managed portfolio in January 2015 to more than 5,700 by January 2016.
The loans are serviced by First Associates, which has limited experience servicing loans for securitization but has a 30-year background as a primary and backup servicer for a range of asset classes including student loans and auto loans.
The collateral pool consists of retail installment contracts of 5,346 of ThunderRoad’s motorcycle loans, out of a total managed portfolio of 5,717 loans with an outstanding principal balance of $63.4 million. Of those loans in the collateral pool, 38.2% are for Harley-Davidson motorcycles and 40% from manufacturers in Japan and Europe. Over 50% of the loans are for new motorcycles. The average contract rate percentage is 10.47%, on loans averaging 77-month terms. ThunderRoad has underwritten motorcycle receivables in 26 states as of last October.
Motorcycles tend to retain more residual value than automobiles because of their limited use (a typical owner does not exceed 3,000 miles annually) and 10 years of useful economic life. It cautioned that the small size of the pool provides higher volatility of expected losses.
According to Morningstar, ThunderRoad’s managed portfolio of 5,717 contracts taken out since 2014 have a total principal balance of $63.4 million has experienced delinquency levels of 5.26%.
Due to limited performance history on ThunderRoad’s managed portfolio performance, Morningstar supplemented its analysis with vintage securitizations issued by Harley-Davidson Credit Corp., due to ThunderRoad executives’ experience with that firm and the similarities in customer credit profiles and backing collateral. Harley-Davidson had three recent securitizations totaling between $650 million and $997 million in 2014 and 2015.
ThunderRoad Motorcycle Trust 2016-1 had more loans with down payments under 10% compared to Harley-Davidson Motorcycle Trust 2015-2 (24.4% vs. 6.04%)for Harley-Davidson Motorcycle Trust 2015-2) and originated more non-prime loans (32%) for customers with credit scores under 665 (Vantage Score rather than the more commonly used FICO).