Veros graduates to 'AA' on its second subprime auto ABS

Subprime auto lender Veros Credit, which debuted its first publicly rated securitization a year ago, is stepping up to double-A status for its follow-up asset-backed transaction.

The California-based, family-owned firm is sponsoring its new $183.06 million Veros Auto Receivables Trust 2018-1 which includes a preliminary AA senior-note rating from Kroll Bond Rating Agency.

Veros’ 2017 deal had a single-A Class A note rating.

Among the changes aiding in the ratings boost is improved underwriting involving fewer deep subprime borrowers, lower loan-to-value ratios on the pooled loans, and the inclusion of a junior-most Class D tranche that is boosting subordination of the higher-rated bonds.

The credit enhancement on the $118.57 million Class A notes is 42.25%; 33% on the $18.35 million in Class B notes (rated A); and 22.5% on the $20.84 million in Class C notes carrying a triple-B rating.

The notes are secured by $198.44 million of loan balances with an average $11,659 remaining per accounts that have average original terms of 53 months.

Kroll expects cumulative net losses for the collateral to be slightly lower, in its base-case scenario, in the range of 16.35%-18.35%, compared with 16.84%-18.84% for its first deal. This is “predominantly due to a larger proportion of more creditworthy loans in the collateral pool,” Kroll’s report stated.

Other changes from the 2017 transaction include a higher average FICO score (568 vs 557), lower LTV (118.82% vs 123.6%, and a lesser concentration in its home state of California (58.6% vs 71.57%), where until 2013 it operated exclusively.

Not all of the credit metrics for the latest deal are an improvement; it is less seasoned, just seven months on a weighted average basis, down from 12 months.

The gross excess spread, which serves as a kind of credit enhancement, is also lower at 13.45% from 15.72%. However, the target overcollateralization is higher at 13.25% from 9.5%.

According to Kroll, Veros is seeking to increase automation in its approval process in order to boost origination volume. It currently only funds about 9% of qualified applications, and wants to boost automation to bring immediate approvals to about 25% of qualified applicants, and 30%-50% within a year. The company's managed portfolio stands at $308.5 million.

Veros Credit has operated since 1998, and until last year had sponsored asset-backed bond issuance strictly through private, unrated deals.