World Omni Financial Corp. is pooling up to $1 billion of prime loans the company originates for Toyota dealerships in the southeast United States into collateral for bonds.

(Toyota Motor Credit Co., the captive-finance arm for Toyota dealers nationwide, issues securitizations under its own distinct platform.)

The transaction, World Omni Auto Receivables Trust 2018-A, is initially sized at $801 million. The bonds to be issued include a money-market notes series that will be sized at either $167 million or $208 million, depending on the size of the overall transaction, with an A-1+ rating from S&P Global Ratings and an A-1 from Fitch Ratings, according to presale reports.

Bloomberg

There are also three term tranches of senior notes: Class A-2 notes and five-year Class A-3 notes to be issued in either a $272 million or $340 million tranches; Class A-4 series due February 2024. All of the senior notes are triple-A rated, and are supported by 5% credit enhancement consisting of 3% subordination, a 1.75% initial overcollateralization and a 0.25% reserve account.

The Class B subordinate tranche of seven-year notes, sized at either $24.5 million or $30.6 million, is AA-rated.

The pool of loans backing the notes has an outstanding balance of either $863.2 million or $1.08 billion if upsized. Applying the amount of the pool consisting of the 5.1% yield-supplement overcollateralization provision covering manufacturer incentives passed on by dealers to auto buyers, the initial receivables balance is $815.2 million for 37,369 loans with an average balance of $23,099 and a weighted average APR of 3.26%, the lowest of any recent World Omni shelf ABS.

Also reaching an unprecedented level is the 754 weighted average FICO of the pool, the highest average to date for a World Omni pool, increasing from 749 for World Omni’s second 2017 securitization last July.

Credit enhancement is in line with most World Omni deals issued since 2011, although it doubled to 5% from the 2% CE level outlier in the World Omni 2017-B transaction. The increased CE is due to an increase in subordination for the A notes (to 3% from 1.75%) and a boost in overcollateralization to 1.75% from 0.75%.

The deal includes a 4.3% of called collateral from previous securitizations, which boosts the average seasoning to 5.6 months from 1.9 months and the weighted average remaining term decreased to 64.3 months from 68.6 months.

S&P reduced its expected net loss range to 1.15%-1.35% from 1.2%-1.4% for 2017-B. Fitch derived a base-case CNL proxy for this transaction of 1.45%.

This is the fifth auto-loan securitization under World Omni’s Regulation AB II compliant retail shelf.

As of Sept. 30, World Omni’s serviced portfolio was $9.76 billion, up 8.25% from the year prior. Total delinquencies were 1.99%, up from 1.74%.

World Omni has been issuing two deals a year since 2011. Six have paid off, with CNLs of between 0.96%-1.66%. 2014-B and 2015-A have CNL expectations of 1.8%-2%.

The latest deal is also the second to include a minimum 650 FICO score.

All of the loans were originated by World Omni, a subsidiary of JM Family Enterprises.

Besides retail financing of customers of Toyota dealers in the Southeast region, Toyota also provides wholesale floorplan financing and mortgage loans to dealers that obtain vehicles from Southeast Toyota Distributors LLC.

Founded in 1981, World Omni has operated as Southeast Toyota Finance since 1996. Southeast Toyota is a distributor through an agreement with Toyota Motor Sales USA that began in 1968.

The securitization is the 11th for World Omni since 2011.

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