World Omni Financial Corp. and Prestige Financial Services added a combined $1.17 billion of securities backed by auto loans to the new issue pipeline this week.
World Omni Auto Receivables Trust 2016-A will issue $858.03 of notes backed prime auto loan loans on vehicles originated primarily by Toyota Motor Corp. and originated by World Omni Financial Corp.. There will be five classes of notes: a money market tranche provisionally rated F1+ by Fitch Ratings and three tranches of term notes rated ‘AAA’; all benefit from credit enhancement of 4.55%. There is also a subordinate tranche rated ‘AA’ with 2.5% credit enhancement.
According to Fitch, the 2016-A pool has weaker collateral credit quality compared with recent transactions from World Omni. The weighted average FICO score has decreased to 722, the lowest level since 2008-B. New vehicles total 94.5% and the pool is geographically concentrated in the southeast, consistent with historical World Omni originations.
Loans with original terms greater than 60 months total 80.3% in 2016-A, the highest to date. Extended-term loans have historically produced higher loss rates. However, this risk is somewhat mitigating by the fact that borrowers within this segment have strong FICO scores.
Subprime lender Prestige Financial Services is also marketing its first auto loan securitization of the year.
The $312 million Prestige Auto Receivables Trust 2016-1 will issue five classes of notes, including a money market tranche provisionally rated R-1 and two classes of term notes rated ‘AAA’; all three benefit form credit enhancement of 36.20%.
Prestige is a private, independent consumer finance company and one of the entities that constitute the Larry H. Miller Group of Co. It was founded in 1994 and funds loans for dealerships in the Miller Group as well as dealerships outside the group. The company’s niche is lending to potential obligors who have recently declared personal bankruptcy. Approximately 33% of the aggregate receivable balance of obligors in this deal who were in Chapter 7 bankruptcy at the time of origination and 14.23% of obligors were in Chapter 13 bankruptcy.
Prestige evaluates an obligor’s entire bankruptcy filing in the course of its underwriting process and gains complete information about all of the obligations of the obligor. Many of the debts an obligor had were discharged as a result of Chapter 7 bankruptcy filing, or are being repaid in accordance with a court order if the filing is a Chapter 13 bankruptcy filing.
Court documentation allows Prestige to calculate a more precise debt-to-income ratio.
Debtors in Chapter 13 bankruptcy specifically must get permission to incur additional debt from a trustee or court order, depending on the state. The authorization is typically quite specific, and once Prestige receives this information and advances funds, it will then begin to service the account the same way it would with a normal loan.
This transaction is being structured as a Rule 144A transaction with a prefunding period of three months.
For modeling purposes, DBRS’ assumed the transaction’s cumulative net losses will be 12.60%.