Flagship Credit Acceptance and Tidewater Finance Co. are marketing a combined $602 million of securities backed by subprime auto loans, according to rating agency reports.

The $446.56 million Flagship Credit Auto Trust 2016-1 will issue four tranches of fixed-rate notes with preliminary ratings from Standard & Poor’s and Kroll Bond Rating Agency. The senior A tranche with credit enhancement of 30.75% is rated AA/AA; the B tranche with 19.85% credit enhancment is rated A/A; the C tranche with 9.95% credit enhancement is rated BBB/BBB; and the D tranche with 4.75% credit enhancement is rated BB-/BB.

Barclays Capital is the lead underwriter.

This is the company's 14th transaction in four years. In its presale report, S&P noted that the overall level of hard credit enhancement increased for all classes compared with the previous transaction. Nevertheless, the rating agency has increased its expectations for cumulative net losses because the collateral is weaker. Notably, there are more loans with longer terms, which amortize more slowly, and more borrowers with no FICO score. As a result, it expects that net losses could reach 11.75%-12.25%; by comparison expected losses for the previous deal are 11.25%-11.75%.  

The $156.38 million Tidewater Auto Receivables Trust 2016-A will issue five classes of term notes with preliminary ratings from KBRA: the class A notes have credit enhancement of 51.25% and a preliminary AAA rating; the class B notes have credit enhancement of 40.8% and are rated AA, the class C notes have credit enhancement of 27.5% and are rated A+, the class D notes have credit enhancement of 15.9% and are rated BBB, while the class E notes have credit enhancement of 11.6% and are rated BB+.

TMCAT 2016-A is collateralized by approximately $143.9 million of subprime auto loans; an additional $30 million of collateral will be acquired within five months of the deal’s closing.

The preliminary ratings reflect the initial credit enhancement levels of 51.25% for the Class A notes, 40.80% for the Class B notes, 27.50% for the Class C notes, 15.90% for the Class D notes and 11.60% for the Class E notes.

Credit enhancement consists of overcollateralization, subordination of junior notes, cash reserves and excess spread. This transaction is Tidewater’s first securitization in 2016 and its sixth securitization overall.

KBRA projects cumulative net losses to be in the range of 11.6% - 13.6% in a base case scenario.

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