World Omni adds long-term prime loans to subprime ABS collateral

World Omni Financial is marketing a new bond offering backed by subprime loans – only the second nonprime deal that the regional Toyota lender has sponsored.

The $688.56 million World Omni Select Auto Trust 2019-A is a securitization of mostly subprime loans. Another 10% of the collateral pool consists of prime loans, but those contracts are from a riskier subset of extended term loans of 78 months that World Omni excludes from the collateral of deals issued via World Omni’s prime ABS platform.

World Omni's first transaction in 2018 did not include the 78-month prime loans, which provided a boost to the new deal's weighted average FICO (634) compared to WOSAT 2018-1 (619), according to S&P Global Ratings.

The transaction includes two tranches of senior notes: a $292 million Class A offering split between fixed- and floating-rate notes due August 2023, and a $129.89 million Class A-3 notes tranche with an August 2024 maturity. All the senior notes have preliminary AAA ratings from Fitch Ratings and S&P, and benefit from 27.7% credit enhancement.

The deal also includes four subordinate note classes: the double-A rated Class B notes totaling $59.56 million; the A-rated Class C notes tranche sized at $37.97 million; and a $32.39 million Class D tranche. The Class D notes have a BBB rating from Fitch, and slightly higher BBB+ from S&P.

Also part of the deal is a $120 million money-market tranche, carrying top short-term ratings of A-1+ from S&P and F1+ from Fitch.

Like other recent auto ABS deals, World Omni has adopted “fallback” language that will determine a replacement benchmark rate on the floating-rate notes in the deal if Libor is no longer published after its expected demise after 2021. The fallback term rate is expected to be a Secured Overnight Financing Rate (SOFR) rate, being developed by a private-industry working group within a New York Federal Reserve committee developing recommendations for alternative benchmark rates.

The transaction is the first issuance of notes from World Omni’s subprime trust since the Select trust's debut $551 million deal that priced in November 2018. That transaction was priced with a 3.24% coupon for the A-2 senior term notes.

World Omni created the subprime trust after it had begun to exclude lower-credit quality loans (from borrowers with FICOs under 650) from its World Omni Auto Trust (WOAT) platform in 2017. Up until then, subprime loans typically made up to 20% of collateral is WOAT deals, according to S&P.

The collateral involves 30,000 loans with an average principal balance of $24,813 and a weighted average APR of 9.05%. The total balance of all the loans it $744.38 million. The average original terms are 73 months, with six months of seasoning. Nearly all the loans (96%) are extended beyond five years.

The Select trust includes loans (12.53% of the pool collateral) issued by World Omni for non-Toyota branded autos. About 20% of the vehicles in the pool are used.

Fitch has a base case loss proxy of 8% for the deal, lower than the 8.5% it estimated for last year’s transaction. With the inclusion of the extended term prime loans, S&P expects lower cumulative net losses from the prior Select trust deal. The new transaction has an expected loss range between 6.75%-7.25%, a significant drop from the 8.75%-9.25% range from a year ago.

JPMorgan was the lead underwriter.

World Omni, which does business as Southeast Toyota Finance, is a captive finance lender and loan servicer for regional Toyota dealers in five states: Florida, Georgia, Alabama, North Carolina and South Carolina.