Securitization

Time Investment Company, a first-time issuer, offers loans that mostly finance home water treatment systems, and its customers approach prime quality.

Jefferson voiced cautious optimism that inflation is headed lower despite a blip in January and said the Fed is likely to begin cutting interest rates later this year.

Although the notes are supported by non-prime assets, Banco Santander sits at the top of the transaction's ownership chain and has a stable long-term, senior unsecured debt rating of A2.

Kobalt's notes benefit from an overcollateralization level of 35%, and a debt service reserve account initially sized to cover six months of fees and interest on the notes.

The latest securitization coincides with the company announcing a partnership with U.S. Bank to provide personal loans to borrowers.

: A1 notes are expected to price at par, with a 13 basis-point spread over the 3-month, I-curve, and 44-77 basis points on the A2 through A4 notes, according to Asset Securitization Report's deal database.

DBRS assumes a base-case net cash flow of $15.8 million on the portfolio, about 28% lower than the issuer underwritten net cash flow amount of $21.9 million.

Banks have been boosting purchases of top-rated CLOs. Commercial bank holdings of mortgage bonds are also on the upswing, climbing 12 of the last 15 weeks.

The deal has a relatively high exposure to commercial and industrial customers. Non-residential ratepayers account for 55% of its customers and about 47% of its revenue.

HBAN will service the transaction, with an A3 rating for long-term, senior unsecured debt, an A2 long-term credit assessment, and P-1 for short-term deposits.

The notes benefit from total hard target credit enhancement of 16.50%, with an estimated 4.02% in estimated excess spread per year.

Like a growing number of auto ABS deals, the pool has more battery electric vehicles, which represent 10.6% of the pool, compared with 3.8% on the previous deal, FCAOT REV 2023-1.

The risk that inflation could remain stuck above their 2% target is guiding Fed officials' preference to keep interest rates where they are for now, even as investors have clamored for cuts.

Treasuries sold off, with two-year yields hitting the highest since before the December central bank "pivot." Swap traders ratcheted down their expectations for a Fed cut before July.

Consumer obligors represent a slight majority of the pool, 54%, while loans to commercial obligors represent the remaining 46%.

In the current pool, some 77.4% for all three pools are composed of tier A loans. This is slightly higher than the concentrations of tier A loans seen in several previous deals.

Just one previous transaction had experienced a loss, the rating agency said. That was the ARI 2021-A, and that transaction experienced a loss of just 0.02%.

Alyssa Irving sees bright production prospects for 2024 for a range of securitization assets, as the industry awaits rate cuts.

Issuance has been scant since DRIVE 2021-3 closed in November 2021. A lack of comparison deals from recent years makes it more difficult to forecast losses.

Indeed, investors are also positioning for Friday's consumer-price index revisions because of what happened a year ago: the update was significant enough to cast doubt on overall inflation progress.