Auto ABS

The deal will be secured by payments on subprime auto loans and comes shortly after officer Jill Rockwood joined as chief financial officer.

Classes A, B, C and D have hard credit enhancement levels of 5.30%, 3.80%, 2.30% and 0.85%, respectively, higher than that of the CHAOT 2022-A.

The OCCU 2023-1 transaction will come to market as a 144a transaction, with higher levels of credit enhancement from yield supplement overcollateralization, initial hard credit enhancement and excess spread.

Subordination increased for the class A and class C notes, to 7.04% and 2.10%, respectively, from 7.00% and 1.50%. Meanwhile subordination decreased on the class B notes to 3.80%, from 4.25%.

The transaction's credit enhancement levels are lower than what was seen on the 2023-A pool, but is still strong, and is still high compared with peer transactions.

Rating agencies say the A, B, C and D notes have about 29.0%, 23.8%, 17.3% and 14.0% in credit enhancement, respectively, while A, B, and C notes enjoy a 15.9%, 10.6% and 4.0% in subordination.

Companies with public ratings from a national recognized rating agency make up 66.9% of the obligors in the pool, and those with an investment-grade rating represent 34.9% of the pool.

Notes will repay principal to investors sequentially. All junior notes will be shut out from receiving any principal payments until the immediate senior notes are paid.

The pool has a 25% concentration limit for electric vehicles, up from 15% from Series 2023-5. This increases risks to the transaction, because residual values on those types of cars are still unknown.

The distribution of dealers among the top categories have improved, while the floorplan loans have monthly payment rates that are at record highs.

Pagaya's artificial-intelligence model utilizes more data points in assessing whether a consumer is creditworthy than the handful typically used by traditional auto lenders, so it can find more consumers who would have previously been denied a loan.

Some 24% of the pool has 76- to 84-month contracts. This deprives observers and investors of robust performance data, because of the lack of seasoning.

The level of seasoning dropped to 18 months, from 21 months, while loans with remaining terms of 73-84 months increased to approximately 7.49%, up from 2.6%.

S&P Global Ratings has an expected cumulative net loss (ECNL) of 1.0% on the class A notes, and a 2.0x loss level on the 'BBB' notes.

Levels of initial hard credit enhancement had dropped on the class A notes to 61.90%, but had increased on the B, C and D classes.

Consumer ABS adapts to an environment where total U.S. household debt reaches a record high of $17.06 trillion, while observers say credit performances could reach pre-pandemic levels by 2024.

Credit enhancement is dynamic and depends on certain market value tests, as well as the composition of vehicles in the fleet.

Comprised of fixed- and floating-rate notes, one of the A classes, the A-2-B tranche, will issue notes benchmarked to he Secured Overnight Financing Rate (SOFR).

Borrowers have a FICO score of 739, which is the highest of prior LADAR transactions. There is also a non-declining reserve account of 1.00% of the initial adjusted pool balance.

The issue has the potential to be upsized to $1.84 billion, and rating agencies say it has about 7.4% in credit support from hard credit enhancement and excess spread.