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Trio of new subprime auto deals brings issuance to over $30B YTD

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Subprime auto-loan securitizations will top $30 billion in total volume after a trio of lenders launched another $2.3 billion in asset-backed deals, according to presale reports issued Wednesday.

Flagship Credit Acceptance, GM affiliate AmeriCredit Corp. and Santander Consumer USA will be printing new deals in the fourth quarter, among nine other deals issued since Oct. 1 that totaled $4.51 billion.

Prior to the three new deals’ launch, the market had reached $29.2 billion, according to Finsight, and had already topped the full-year 2017 total of $24.7 billion. The market has had three consecutive quarters of increasing volume this year.

Flagship Credit Auto Trust 2014-4
Both S&P Global Ratings and Kroll Bond Rating agency reduced expected credit losses for Flagship Credit Acceptance’s next $297.4 million deal, citing the improved performance of 2017-vintage deals by the direct/indirect lender.

Kroll’s base case cumulative net loss expectation for Flagship Credit Auto Trust (FCAT) 2018-4 decreased to 11.95% from 12.45% in Flagship’s previous deal in August. S&P reduced its CNL range to 12.25%-12.75% compared to 12.5%-13% in FCAT 2018-3, and a higher range of 12.75%-13.25% for FCAT 2018-1 and FCAT 2017-4.

Early performance on the 2017 vintages is showing “noticeable improvement” in early expected losses compared to 2016, as Flagship works to improve credit characteristics in its asset-backed portfolios. The deals now include no military loans and a much smaller percentage of thin file/no file borrowers lacking credit.

The capital stack includes $190.78 million in Class A notes carrying preliminary triple-A ratings from both agencies.

Those metrics, along with recent improvements in ABS loss performance, allowed lower total initial hard credit enhancement of 37.4%, down from 41% in the two prior Flagship deals, according to both agencies’ presale reports.

Most of the loans are originated as indirect loans to independent and franchise auto dealerships and lots, while 16.46% are originated through Flagship’s online direct program under the Carfinance brand platform.

The weighted average APR on the pool has increased slightly to 16.25% from 16.13%, with an average FICO of 589 and average loan-to-value of 120.25% on original terms of 71 months (over 90% extend over 60 months) for the mix of new (28.65%) and used (71.35%) vehicle loans.

The deal will include a two-month prefunding account totaling $60 million, although that total is expected to be reached by Nov. 30 based on current originations.

Cleanup collateral from prior deals makes up 5% of the pool, similar to 2018-3 but below the 10% level of prior deals – a credit negative according to S&P.

Citigroup is the lead underwriter.

Drive Auto Receivables Trust 2018-5
Santander Consumer USA’s fifth subprime auto transaction of the year, totaling $1.012 billion, includes two triple-A tranches: a $280 million fixed/floating rate tranche of senior Class A-2 notes (final maturity of July 2021) and a $186.8 million Class A-3 tranche with a legal maturity of October 2022.

Santander is also offering a $122 million money-market tranche with an early A-1+ rating from S&P, and three subordinate tranches: a $125.04 million Class B tranche due July 2023 with a double-A rating; a $178.46 million, single-A rated Class C tranche due 2025 and a $119.84 million Class D tranche with triple-B ratings due 2026.

Total initial hard credit enhancement is 55.8% for the Class A notes, a decrease from 61.7% in Santander’s prior DRIVE transaction due to a decrease in subordination.

The deal is the third on the DRIVE platform to exclude any loss triggers.

Earlier in 2018, S&P lowered its expected net losses on two 2016 transactions down to the 25.75%-27% range – as well as revising net losses on four 2017 deals down to 22.5%-26.5%. As a result of “better than expected” performance on outstanding transactions, S&P assigned a 25%-26% net loss range on the 2018-5 transaction.

Citigroup is the structuring agent on the deal.

AmeriCredit Automobile Receivables Trust 2018-3
AmeriCredit, an operating subsidiary of GM Financial, is marketing bonds backed by a loan portfolio of $1.08 billion across 48,286 accounts tied to passenger cars, trucks and SUVs. The loans average $22,553 each in AmeriCredit’s third issuance of the year through the AmeriCredit Automobile Receivables Trust (AMCAR).

The loans are for subprime borrowers with an average FICO of 582 (in line with recent AMCAR portfolios).

The average APR of 13.09% is slightly above the previous AmeriCredit portfolio (12.54%) and the average loan-to-value ratio is 107%. The average one-month seasoning is a second consecutive decline in portfolio aging, after AMCAR 2018-2 was seasoned only two months following recent deals in 2017 with four months of seasoning.

The senior term notes including a Class A-2 $305 million fixed-/floating-rate offering (the split to be determined) due 2022 and a $261.4 million Class A-3 tranche due 2023, all with preliminary triple-A ratings from DBRS and Moody’s Investors Service.

The $1.03 billion transaction has a $161 million Class A-1 money-market tranche with a preliminary R-1 (high) rating from DBRS and P-1 from Moody’s.

The subordinate tranches are $78.95 million in double-A rated Class B notes with a 2024 maturity, $98.01 million in Class C notes also due 2024 with a single-A rating, and a $96.4 million Class D bond tranche due 2024 with triple-B ratings.

A $25.59 million Class E tranche is double-B rated, but it will be retained by the depositor and will not be publicly offered.

DBRS wrote that the loss performance for AmeriCredit’s auto loan portfolio has been stable, and that new-vehicle loans – driven by its ties to GM dealers – continue to make up more than half (56%) of the pool value for recent AMCAR transactions, giving the issuer a lower weighted average loan-to-value ratio than other subprime issuers. (AmeriCredit is maintained as a brand for indirect loan originations through GM franchise and select independent dealerships.)

Moody’s has expected losses of 9.5% on the life of the transaction.

DBRS, which has not rated an AmeriCredit transaction since August 2017, has an expected loss level of 9.25% on the transaction.

The deal was underwritten by Citigroup, Barclays, Wells Fargo and Societe Generale.

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