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Tidewater readies 1st subprime auto ABS in 2 years

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Tidewater Finance Co., a subprime auto lender that specializes in borrowers in bankruptcy, is marketing its first securitization since 2016, according to rating agency presale reports.

Over the past two years, Tidewater has increased originations of loans to borrowers who are entering bankruptcy, which have been performing well. The product is called a “341” loan (a reference to the meeting bankruptcy petitioners are required by Section 341 of the Bankruptcy Code to have with their creditors). Though FICO scores for such loans are higher than for Tidewater’s products targeting borrowers existing bankruptcy or ordinary subprime borrowers, they have been performing well, according to Kroll Bond Rating Agency. They account for 66.9% of the principal balance of new transaction, Tidewater Auto Receivables Trust 2018-A.

As a result, the weighted average FICO score of borrowers in the 2018 deal is lower than that of the 2016 deal (508 vs. 525).

The weighted coupon of the collateral pool is slightly higher (17.72% vs. 17.34%), and the pool includes more loans with terms of over 60 months (93.07% vs. 89.01%).

The initial $130.3 million of collateral for the $185.3 million deal also includes $13.9 million of loans from a 2014 transaction that is being called. These recycled loans are 47.51 months seasoned, on average, which makes the collateral pool in the new deal more seasoned than the 2016 deal (11 months vs. nine months). After the completion of a prefunding period, the recycled loans will account for 7.51% of the total pool.

Tidewater has five months to put the additional $55 million of proceeds from the deal to work in new loans, which must comply with certain eligibility criteria, including original term, annual percentage rate, FICO, loan-to-value ratio, and origination channels.

Kroll’s weighted average, base-case cumulative net loss range after the seasoning adjustment is 10.80%-12.80% with a midpoint of approximately 11.80% based on the worst-case pool mix.

The latest transaction also benefits from having First Associates as the backup servicer, according to Kroll. The 2016 transaction had Wilmington Trust as the backup servicer, which had a subservicing arrangement with CSC.

Both Kroll and S&P Global Ratings expect to assign triple-A ratings to the senior tranche of notes to be issued, which benefits from 42.1% credit enhancement. There are also four tranches of subordinate notes with ratings ranging from AA to BB.

Tidewater also has the option to repurchase a delinquent receivable from the transaction up to 10% of the closing date balance.

Tidewater is 90% owned by the Sandler family and 10% owned by Nathan Benson, the company’s CEO. It has been making subprime auto loans since 1995 and has turned a profit every year since 2005. It has asset-backed warehouse facilities from four different lenders — Bank of America, First Tennessee Bank, Union Bank & Trust and Capital One — for a total of $135 million, all of which mature in February 2019.

As of March 31 the company was servicing nearly 15,000 active accounts, a total of more than $214 million loans.

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Auto ABS Subprime lending Auto lending