World Omni is braving the August hear to bring $941.49 million of notes backed by auto loans to market.
World Omni Auto Receivables Trust 2016-B will issue five tranches of notes with preliminary ratings from Fitch Ratings; there is a $192 million money market tranche rated ‘F1’ and three senior term tranches totaling %723.48 million that are rated ‘AAA.’ All four benefit from 5.2% credit enhancement.
A $26 million subordinate tranche with 2.5% credit support is rated ‘AA.’
The transaction is backed by retail installment sale contracts on new and used automobiles and light-duty trucks manufactured primarily by Toyota Motor Corp. and originated by World Omni, the servicer and sponsor.
Among the major considerations that Fitch took in to account in rating the deal is the weaker credit quality of the collateral pool. Borrowers have a weighted average FICO core of 719, down from 722 in World Omni’s previous deal, completed in March. The collateral is also geographically concentrated in the Southeast, though this is consistent with previous deals. Exposure to new vehicles declined to 89.6% from 94.5% in the previous deal, marking the lowest level for World Omni since 2012.
Another indication of weaker credit quality is the high percentage of loans with original terms greater than 60 months, which total 81.1% in 2016-B, the highest to date in a World Omni pool. In its presale report, Fitch notes that extended-term loans have historically produced higher loss rates, because they amortize more slowly.
Offsetting these negative factors, World Omni has increased investors protections. The hard credit enhancement for the class A notes, at 5.20%, is p 65 basis points higher than in the previous transaction. Class B hard credit enhancement is unchanged, however.