With TALF backing, subprime auto lenders carry on new ABS deals
Three subprime auto lenders have launched $1 billion in new asset-backed transactions for the week ending May 29, each carrying higher-than-average loss expectations from ratings agencies over concerns how well risky borrowers with weather COVID-19 economic impact.
Texas-based Exeter Finance is sponsoring a $500 million offering of notes backed by $548.6 million in loans, in one of its smallest deals in the past several years.
DriveTime Automotive Group is also in the mix, planning to sell $300 million in bonds for a pool of over 21,000 loans originated with its deep-subprime base of buyers (average FICO of 532) who have recently purchased cars and light-duty trucks at DriveTime-owned lots.
Consumer Portfolio Services has a $202 million pool of mostly indirect subprime auto loans acquired from independent and franchised dealers, in its 37th securitization since 2010.
The trio join three other lenders (Santander Consumer USA, American Credit Acceptance and Flagship Credit Acceptance) in sponsoring deals since the Federal Reserve announced in late March that senior auto ABS notes (including from subprime issuers) were eligible for discount financing help from the Fed's Term Asset‐Backed Securities Loan Facility (TALF) program designed to boost securitization activity for certain asset classes.
In each of the deals, ratings agencies are projecting higher cumulative net losses for ABS investors because of the threats of extensive joblessness and expected forbearance and extension activity that could impact the loans in the collateral pool.
With investors taking on higher risk, the issuing trusts for each of the lenders is providing greater levels of protections through credit enhancement features providing wider cushions against potential shortfalls in payment receivables from the pools of loans.
Exeter Automobile Receivables Trust 2020-2 includes more than 30,000 contracts with average APRs of 21.6% primarily for used automobiles. Compared to its first 2020 ABS transaction in February, Exeter is slightly increasing seasoning (3 months) on loans with average balances of $15,993 and loan-to-value ratios of 113%.
For the $240.5 million Class A tranche of notes, Exeter is providing increased credit enhancement of 59.15%, in increase from 57.4% in its prior deal. S&P Global Ratings has increased its expected loss range to 23.75%-24.75%, from 20.5%-21.5% for recent Exeter deals it has rated. Moody’s Investors Service raised its cumulative net loss projection to 27.5%, 6.5% higher than the Exeter Trust’s 2020-1 deal.
Deutsche Bank and Citigroup are leading the transaction.
DriveTime’s DT Auto Owner Trust 2020-2, also via Deutsche, will have a Class A notes tranche of $148.47 million as part of its transaction. While credit enhancement is slightly lower (60.15%), that is a result of an increased size of junior notes offered. Overcollateralization has actually been boosted to 19.6% from 13.4% in recent DriveTime securitizations, and will build up to a target of 24.6% as the notes amortize.
S&P notes DriveTime’s deal has a “marginally weaker” pool, mostly due to a declining percentage of borrowers from DriveTime’s highest internal credit-scoring tier.
S&P has assigned preliminary AAA ratings to the Class A notes, but has raised the expected CNL range to 32.75%-33.75%, from 28.5%-29.5% in prior deals.
DBRS Morningstar also issued early AAA ratings to the Class A notes for DriveTime’s 70th overall deal since 1996, and 33rd securitization since 2009.
CPS Auto Receivables Trust 2020-B will be a pool 12,528 loans with a total balance of $221.87 million, or a weighted average balance of $17,710 on original terms of 68.15 months.
CPS, which mostly purchases auto-loan contracts from franchised auto dealers, has compiled a pool with an average FICO of 561.
Credit Suisse is the lead underwriter.
The $94.4 million Class A tranche is expected to be rated triple-A by DBRS Morningstar and S&P, with initial hard credit enhancement of 58.7%.
S&P has an expected loss range of 21.5%-22.5%, up from 18.5%-19.5% in its mostly recently rated CPS transaction.
None of the deals have included a prefunding account allowing the issuer to acquire and pool future loans into the existing portfolios.
Exeter and DriveTime have also excluded any loans that have been granted extensions or other relief related to the economic stresses from the coronavirus outbreak. CPS has a limited share of accounts – 0.71% – which have been granted COVID-related extensions.