World Omni's second prime auto loan securitization will test appetite for long-term loans.
The transaction, dubbed World Omni Auto Receivables Trust 2015-B, bundles 48,642 loans, most with terms of 60 months or more, according to Fitch Ratings. In total, 76% of the pool will consist of long-term loans — the most World Omni or any other prime auto loan securitization sponsor has ever included in a pool.
Longer term loans, defined as loans of 60 months or more, can lower a borrower's monthly payment and are somtimes used to facilitate the purchase of a more expensive car. The loans are considered riskier because the borrower spends a longer time "underwater" on the loan, owing more than the vehicle is worth. This exposes investors to higher loss severity if the obligor defaults. "There has been a distinct trend of increasing extended term loan originations since 2010," according to Fitch.
Also up in the pool is the weighted average (WA), annual interest rate borrowers pay on the loans; that's increased to 4.40% from 4.32% WA APR of World Omni's previous auto loan deal issued in July. Increasing APRs is a trend to keep an eye on, said Fitch, because it may signal, "high risk-based pricing to customers;" or in other words lending to riskier borowers. But the borrower pool backing World Omni 2015-B are of good quality; the pool's WA FICO is 724 and the loans are used to finance mostly new cars manufactured primarily by Toyota Motor Corporation.
Fitch ratings assigned 'F1+' ratings to the money market tranches; 'AAA' ratings to four tranches of class A notes and 'AA' ratings to the class B notes on offer. The fixed and floating rate class A2 notes mature on July 15, 2019; the class A3 notes mature on Dec. 15, 2020; and the class A4 notes mature on Jan. 17, 2022. All of the senior tranches benefit from 4.55% credit enhancement.
At the subordinate level, the class B note mature on August 15, 2022 and benefit from 2.50% credit enhancement. JP Morgan Securities is the lead underwriter.
As of June, 30, 2015, World Omni’s outstanding loan portfolio stood at $8.16 billion, up from $7.48 billion at June 30, 2014. The portfolio has grown in conjunction with rising auto sales over the past four years and expanded from $4.52 billion in 2009.