A pool of non-prime retail auto loans—where a substantial majority of borrowers have no credit score, yet the remaining sliver has a strong FICO score—will secure $353.51 million in asset-backed bonds issued from the Tricolor Auto Securitization Trust.
Specialty lender Tricolor Auto Acceptance is sponsoring the deal, which will securitize revenues from leases on used automobiles, light-duty trucks, sport utility vehicles and vans, according to ratings analysts from Moody's Investors Service. Known as TAST 2024-1, the deal will sell classes A through F notes notes to investors through six tranches.
Barclays Capital and J.P.Morgan Securities are on the deal as lead underwriters, according to Moody's.
Price talk on the notes range from 185-190 basis points over the three-month, I-Curve on the class A notes to 450 basis points over the BBB-rated class D notes.
The notes benefit from total initial hard credit enhancement of at least 50.65% on the class A notes; 46.50% on the class B notes; 44.50% on the class C notes; 38.25% on the class D notes; 32.75% on the class E notes and 24.75% on the class F notes. Another layer of credit enhancement is in the form of a reserve fund amounting to 1.50% of the initial aggregate pool balance, the rating agency said.
The percentage of obligors in the pool with no credit history amounts to about 81.5%, and that is actually higher than prior transactions from the TAST program, Moody's said. The rating agency also noted that it has a credit loss expectation of 22.0%. Another drawback is that Tricolor had about $1.1 billion in assets under management as of Dec. 31, 2023, making it a relatively small servicer. Also, the entity has limited securitization experience, having done just 10 deals since 2018. Limited experience makes forecasting potential losses more difficult, Moody's noted.
The trajectory of used car prices in the current market is another concern. Prices have declined from their highs in 2022, and softened even more in recent months, Moody's said.
Aside from those characteristics, the collateral is composed of about 13,883 contracts, has a weighted average original term of 64 months, with average seasoning of five months, an APR of 15.7% on a WA basis, and a loan-to-value ratio of 126.2%.
Moody's did not rate the class A notes, it said, but it did assign A1 and A2 ratings to classes A and B; Baa2 and Ba2 to classes D and E and B2 to the class F notes.
Kroll Bond Rating Agency rated the class A notes, assigning it AAA; it assigned AA- to the class B notes; A to the class C notes; and BBB and BB to the D and E notes, respectively.
