Westlake Financial Services and American Credit Acceptance launched a total of $664 million of bonds backed by subprime auto loans on Friday.
Westlake’s deal is its second and has been given preliminary ratings by Standard & Poor’s.
The $450 million Westlake Automobile Receivables Trust 2015-2 will offer two senior tranches and four subordinate tranches. The $117.2 million class A-1 fixed-rate notes are rated A-1+’ by S&P. The money market notes are due July 15, 2016. The $187.25 million class A-2 notes are split into fixed- and floating-rate notes, are rated AAA,’ and reach final maturity July 16, 2018.
The transaction’s junior tranches consist of $34.49 million class B fixed-rate notes rated AA,’ $47.6 million class C fixed-rate notes rated A,’ and $40.47 class D fixed-rate notes rated BBB.’ The class B, C, and D notes are due January 15, 2021. There are also $22.29 million of class E fixed-rate notes due March 15, 2022 that are rated BB.’
Wells Fargo Bank is the sole underwriter on the deal.
The class A, B, C, D, and E notes benefit from 42.8%, 37.2%, 29.6%, 23.1%, and 19.4% credit support, respectively. According to S&P, the latest deal is approximately $55 million larger and benefits from higher initial credit enhancement than the previous deal of the year. In its presale report, the ratings agency notes that subordination increased 500 basis points due to the addition of the class E notes.
Westlake 2015-2 is secured by a pool of 45,758 auto loan receivables with an average principal balance of $10,050. The borrowers have a weighted average (WA) FICO score of 587 and the loans have WA seasoning of 4.66 months, which is a sharp decrease from 9.11 months for Westlake 2015-1. Lower WA seasoning is typically considered riskier because borrowers have been making payments for less time, making their chance of default higher.
Purchasers borrowed 110.95% of the value of the vehicles on a weighted average basis, as compared to the 109.99% loan-to-value ratio of Westlake 2015-1. The higher leverage of these loans increases the riskiness of the transaction.
Loans in the pool consist of 4.1% new vehicles and 95.9% used vehicles with an average mileage of 87, 506 miles, which is just slightly lower than the first deal of the year.
Providing a moderate level stress scenario, S&P does not anticipate lowering the class A and B ratings, will only lower the class C notes by one category, and will only downgrade the class D and E notes by a maximum of two categories within the first year.
S&P expects cumulative net loss between 11.5% and 12%, consistent with 2015-1.
The deal is expected to price mid-week and close on June 24.
American Credit Acceptance
American Credit Acceptance’s deal is also its second of the year. The $214.3 million ACA Receivables Trust 2015-2 is backed entirely by a pool of used vehicle loans. Kroll Bond Rating Agency (KBRA) assigned its AA’ rating to the $132.2 million class A notes set to mature June 12, 2019. The deal also offers three subordinate tranches: $36.7 million class B notes rated A,’ due May 12, 2021, $30.6 million class C notes rated BBB,’ due May 12, 2021, and $14.7 million class D notes rated B,’ due March 14, 2022.
The class A, B, C, and D notes benefit from initial credit enhancement of 48%, 33%, 20.5%, and 14.5%, respectively.
Wells Fargo Bank is the lead underwriter on the deal.
Borrowers in the pool have a weighted average (WA) FICO score of 541, which Kroll considers a weakness of the deal. Additionally, 12.5% of borrowers have no FICO score. Loans in the pool have a WA balance of $12,121, WA loan-to-value ratio of 128.6%, with a WA seasoning of seven months. The focus on lower quality subprime obligors is noted as a risk factor in the presale report.
Similarly to ACA 2015-1, loans in the pool have the highest concentrations in Texas (18.8%) and Florida (12.95%).
Kroll expects the cumulative net loss range to be between 23.2% and 25.2%.
In its presale report, Kroll says “The transaction is structured to de-lever, thereby increasing the level of credit enhancement over time, which is beneficial to the maintenance of the note ratings.” The ratings agency also cites ACA’s diversified funding and increased profitability over the past three years as a contributing factor to the ratings.
The latest deal is the company’s tenth auto loan securitization since 2011, with the transactions totaling approximately $2.13 billion. Kroll cites experience in the subprime loan sector as a key strength of the deal.
It is one of several in the auto sector announced last week, including subprime deals from Santander Consumer USA and Westlake Financial Services, and prime deals from SunTrust Bank and Nissan USA Toyota Motor Credit Corp.