Americans are buying fewer cars; as a result, investors in auto loan ABS are getting more exposure to trucks and sport utility vehicles.
Two bond offerings launched this week illustrate the trend.
Loans backed by the sales of used sedans, coupes and hatchbacks account for just 46.9% of the collateral for the $1 billion CarMax Auto Owner Trust (CAOT) 2017-2. That's a seven-year low, according to rating agency presale reports.
World Omni, which finances primarily new-vehicle loans through regional Toyota dealers in the Southeast U.S., has just 46.8% of its latest pool concentrated in new Toyota-brand passenger cars. That's well below the normal range of 50-57% seen in its last nine securitizations. The $1 billion World Omni Auto Receivables Trust 2017-A is upsizable to $1.37 billion.
“Historically, cars have accounted for the highest percentage of CarMax pools, followed by sport utility vehicles, which total 40.8% in this transaction,” compared to a range of 32.7%-37.3% in recent CarMax deals, Fitch Ratings said in its report. “This is driven by stronger sales of trucks and SUVs lately, and is likely a credit positive as the market values of trucks/SUVs have held up better than cars in the recent low gas price environment.”
According to statistics compiled by Autodata, Inc., year-to-date passenger car sales are off 11.5% while light truck/SUV sales are up 5.9%. The fall-off in YTD new-car sales compared to the first three months of 2016 impacts nearly all manufacturers with regular U.S. auto securitizations: General Motors (-15.8%); Ford (-22.4%); Fiat Chrysler Automobiles (-26.8%); Honda (-8.7%); Toyota (-15.1%); Nissan (-12.7%); Hyundai (-11.9%) and Kia (-9.4%).
Meanwhile, YTD truck/SUV sales are up for Ford (3.3%) and GM (8.3%) and soaring for Honda (14.4%), Nissan (25.8%), Hyundai (31%),
Both Fitch and S&P Global Ratings affixed triple-A ratings to the multi-year senior note tranches of both deals.
The CAOT trust is issuing a one-year series of money-market notes totaling $169 million, along with three Class A note offerings: a $338 million Class A-2 tranche maturing in 2020; a $337 million Class A-3 series due in March 2022 and $90 million in Class A-4 notes due September 2022.
The notes carrying 6.85% credit enhancement is higher than CarMax’s two most recent deals but enough to withstand a cumulative net loss proxy of 2.45%, according to Fitch. (S&P expects a CNL range of 2.15%-2.25%). All of the notes are backed by the prime receivables of used-vehicle loans (with an average seasoning of 2.35 months) issued at 173 CarMax stores in 86 markets. CarMax is the largest retailer of used cars in the U.S.
For World Omni, the makeup of the notes is similar. It is packaging $179 million in money-market notes along with three classes of A notes. The $380 million A-2 series is split between fixed- and floating-rate tranches, each due August 2020; $339 million in A-3 notes due September 2022 and $74.38 million in Class A-4 bonds with a maturity date of June 2023.
Credit enhancement is 5.2% on the senior notes.
The CE level for World Omni is the same as its previous transaction (WOART 2016-B), although the deal’s expected excess spread of 3.75% will be down slightly from that pool.
Like other auto lenders, World Omni and CarMax are coping with increased losses in recent-vintage securitizations from 2014-2015, prompting the trusts to tighten underwriting standards. World Omni, for instance, has a boost in the weighted average FICO in the WOART 2017-A pool to 725 (from 719 in its prior deal) for 51,693 loans with an average loan balance of $21,120.
CarMax has introduced its highest-ever pooled FICO average of 708 and a 31.8% concentration of borrowers with FICOs above 750. The firm also has included a higher percentage of borrowers FICOs over 700 (up to 49.78% from 48.84% from its first deal in 2017).
CarMax also has also reduced the number of extended-length terms on loans greater than 60 months. The percent of loans with original terms between 61 and 72 months is 56.7%, compared to 60.38% for its CAOT 2016-3 transaction.