Santander Drive Auto Receivables plans to issue ABS
Santander Drive Auto Receivables Trust, 2022-2 prepares to tap the capital markets for $1.3 billion in asset-backed securities (ABS) or $1.7 billion in ABS, secured by new automobiles and d used, sport utility vehicles (SUVs), and light trucks.
Deutsche Bank Securities is the lead underwriter in the deal, which uses a sequential payout capital structure, according to a pre-sale report from Moody’s Investors Service.
The Servicing Agent will first allocate funds for reimbursement to the Deed Trustee, Owner Trustee, and Asset Representation Examiner for their respective fees. Of the notes, Class A will receive interest payments, then the first principal allocation, followed by interest and the second principal allocation on Class B notes, then the same for Class C.
Moody’s intends to assign a P-1 rating to the $246.1 million Class A-1 Notes. The rating agency plans to assign “Aaa” to classes A-2, A-3 and B, regardless of the initial principal balance. Class C notes should be rated “Aa2,” Moody’s said.
Some 73,608 contracts, or debtors, secure the collateral pool. A large majority of cars in the pool, 77%, are used, leaving 23% which are new, Moody’s said. Santander Drive Auto Receivables is the transaction filer.
On average, loan amounts are $23,521 if the pool is $1.3 billion, or slightly less. On a weighted average (WA) basis, the characteristics are similar regardless of pool balance. The collateral has a WA FICO score of 600, a loan-to-value (LTV) ratio of 106%, an average APR of 14.6%, an initial term of 71 months and a seasoning of five months.
Moody’s considers some of these characteristics to be credit issues. Pool borrowers also have a higher debt-to-income ratio, compared to the 2022-1 deal.
Additionally, the rating agency raises the flag of caution regarding the recent spike in used car prices. If there is a drop in demand, second-hand prices are likely to fall and reduce recovery rates.
In terms of credit enhancement, Santander Drive Notes, 2022-2, have an initial credit enhancement of 46.5% on classes A-1 to A-3, while class B has a CE of 34.5 % and Class C has 23.2%. The notes are also overcollateralized representing 22.2% of assets.