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World Omni preps debut offering of nonprime auto loan ABS

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Last year, World Omni Financial Corp. began excluding less-creditworthy borrowers from its primary auto loan securitization platform.

Well, those loans had to wind up somewhere.

This week it launched a new program for securitizing what S&P Global Ratings characterize as both non-prime and subprime loans. World Omni is a captive finance company for Toyota dealerships in the Southeastern U.S., though it also underwrites loans for vehicles not manufactured by Toyota.

The $573 million World Omni Select Auto Trust (WOSAT) 2018-1 is collateralized by both kinds of loans, which historically made up 20% of the pool for the prime retail loan securitization platform, World Omni Auto Receivables Trust (WOART), per S&P.

The nonprime and subprime contracts in the collateral pool have been sitting in World Omni’s $10.3 billion managed outstanding portfolio, which is up from $9.5 billion a year earlier.

The new trust is World Omni’s fourth asset-backed platform. The company actively issues new deals for both loans and leases through individual trusts, including six this year: four loan ABS transactions through WOART, and two lease-backed transactions sponsored by the World Omni Automobile Lease Securitization Trust.

World Omni also has a master owner trust to financing dealer inventories, but that shelf has only one outstanding transaction from 2009, the last time the platform was utilized for a publicly rated deal.

WOSAT 2018-1 will issue two AAA-rated tranches of senior notes: $215 million of Class A-2 notes with a legal final maturity of April 2022 and $110.5 million of Class A-3 notes due March 2023.

Those notes, plus a Class A-1 money-market tranche sized at $103 million, are supported by 32.45% credit enhancement. The A-1 notes are rated F1+ by Fitch Ratings and A-1+ by S&P.

The capital stack also includes four junior classes of notes providing a 22.95% subordination boost to the Class A tranches (in addition to an initial 9% overcollateralization and 0.5% non-declining reserve account that fills out the enhancement). The deal is structured to be short-lived (a weighted average life of 1.61 years), so the initial excess spread of 3.97% is expected to grow to 6.41% for the life of the deal.

The double-A rated Class B notes total $34.63 million; the single-A Class C notes are sized at $50.37 million; the Class D notes (rated triple-B) total $37.78 million; and the double-D Class E notes are $21.73 million.

The 26,006 subprime installment loans in the pool are secured by primarily new (78.8% of the pool collateral) and used Toyota-brand autos and light-duty trucks, with an aggregate balance of $629.6 million (or $24,210 per contract). Over 87% of the pool is secured by Toyota vehicles, and weighted toward passenger vehicles that make up 60.8% of the pool. That’s higher than World Omni’s recent prime auto-loan pools.

The pool carries a weighted average FICO of 619; nearly 50% have non-zero FICO scores less than 620, according to presale reports. The weighted average APR is 9.19%, with over 43% of the loans having rates greater than 10%.

The pool contains mostly extended term loans: those with 61-plus month terms represent 94.6% of the principal balance, and 50% are over 72 months. The pool has a five-month seasoning.

Fitch modeled a base-case loss proxy of 8.5% for the new deal, while S&P established an expected loss of 8.75%-9.25%. To determine its loss range, S&P used data from World Omni’s paid-off vintages from 2008-2012 and 2010-2012; the later vintages “generally produced a slower loss timing curve due to, in our view, an increase in loans originated with longer loan terms, up to and including 75 months.”

JPMorgan is the lead underwriter.

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Subprime lending Auto ABS