Auto ABS

The reasons for BofA's success vary, but in a year when the auto ABS sector experienced a surge in issuance in the second half of the year, several banks appeared to benefit.

Over-collateralization in the form of vehicles provides most of the deal's credit enhancement on the notes, which also has a higher concentration limit for Teslas.

Throughout the year, auto ABS was a stronger performer than other consumer ABS asset classes, with $141.1 billion in new securitization business.

This is the program's third transaction, according to ASR's deal database. The notes have about 8.57% in credit support for all five tranches, which are all class A notes.

COVID-19 largesse enabled subprime borrowers to pay down debt and boost credit scores. Then interest rates rocketed up in 2022, and new subprime auto borrowers felt the pinch.

Credit enhancement consists of overcollateralization, excess spread of about 6.09%, subordination (except for the class D and class N notes), and a reserve account.

A cash collateral account secures the principal payments, which makes SBNA's credit-linked notes deal a bit different from other bank-sponsored credit-linked note deals—albeit similar to SBCLN 2023-A.

The loans have strong borrower characteristics, such as a weighted average (WA) FICO score of 733, and WA seasoning of 10 months.

Classes A, B and C benefit from hard credit enhancement levels of 60.80%, 42.80% and 24.57%, respectively, an increase from the comparison deal.

The National Credit Union Administration insures Space Coast's deposits, with the power to repudiate the prime retail auto contracts or re-characterize receivables, potentially reducing or delaying note payments.

The reference pool that supports the credit-linked notes contain 97,444 fully amortizing, fixed-rate prime auto loans that have a total balance of $2.46 billion.

Classes B, C, D and E benefit from credit enhancement levels amounting to 41.35%, 28.45%, 15.30% and 6.15%, and enhancements include a reserve account, excess spread and subordination.

Expectations are for the notes to price at 18 basis points over the three-month interpolated yield curve on the A1 notes, which get 'A1+' and 'F1+' from S&P and Fitch.

Ratings analysts say the A1 through A3 tranches benefit from total hard credit enhancement of 43.00% of the deal's initial principal balance, which includes subordination and a non-declining reserve account of 1.00%.

The company is coming off of a recent period of performance improvements, with gains in net income, cash and cash equivalents.

In one of the deal's positive credit attributes, none of the underlying loans in the collateral have terms longer than 72 months. Such longer-term loans have historically performed worse than shorter-term loans.

Subprime auto loans will repay the outstanding notes, and the collateral pool includes changes such as 85.67% of originated loans in the current pool, with a cutoff date of September 30, falling within CPS' top five credit tiers.

All of the class A notes, of which there are four tranches of notes, have a credit enhancement level of 7.55%, while classes B and C have credit enhancement levels of 5.75% and 2.75%.

As interest rates rise and delinquencies among borrowers with poor credit scores soar, investors are increasingly scrutinizing the riskiest slices of asset-backed securities sold by some subprime auto lenders. That's forced certain issuers to postpone deals or sweeten terms.

Regardless of HAROT 2023-4's issuance amount, which could reach $1.8 billion, all of the notes have total initial hard credit enhancement levels of 2.75%, and a reserve fund of 0.25%.