Securitization market faces automatic transaction congestion

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Investors are currently being asked to digest nearly $ 5 billion worth of auto-linked asset-backed securities (ABS) from five issuers with a variety of strengths and weaknesses to ponder.

Most floating rate loan securitizations continued to price their obligations above Libor, despite the requirement to price new transactions on a replacement Libor rate from next year. Hyundai Capital’s third automatic receivables securitization this year aims to price up to one-third of a $ 500 million AAA-rated tranche by S&P Global Ratings, leaving the remainder at a fixed rate.

Sunrise over a crowded parking lot with many rows of cars.

Michael O’Keene / mokee81 – stock.adobe.com

The remaining five tranches of the $ 1.5 billion Hyundai Auto Receivables Trust 2021-C transaction are expected to be fixed, including $ 290 million in “A-1 +” rated short-term debt and $ 46 million in debt. subordinate noted “AA-“. Floating rate notes are expected to be valued on a 30-day average of the overnight SOFR that is compounded in advance, according to the S&P presale note from S&P Global Ratings released Nov. 3, which notes that the spread over SOFR will be the total credit risk of the transaction and will not contain the bank credit risk layer recorded in Libor.

In addition, terms in the securitization documents govern the choice of another rate in the event of unavailability of SOFR.

An $ 850 million securitization of Exeter Finance is also approaching market, its fourth auto loan securitization this year. Moody’s Investors Service notes several strengths, including the experienced management of Exeter, which will remain in place following the closing of the acquisition of Exeter by Warburg Pincus later this year.

The rating agency also notes the improvement in the credit quality of the collateral in the agreement compared to its previous agreement, and the accumulation of credit uplift as the loan pool amortizes.

However, Exeter, which sponsors and manages the deal, has a relatively low rating of “B2” by Moody’s.

“A transaction with a financially weak provider and sponsor gives additional variability to the expected loss scenario because their probability of default is unknown,” said Moody’s report of November 3.

AmeriCredit Financials is entering the market with an automatic receivables securitization of $ 956.5 million, primarily non-privileged retail installment loan contracts issued by AmeriCredit, a wholly owned subsidiary of General Motors.

The agreement includes seven tranches of rated bonds, ranging from a money market tranche of $ 144.6 rated “P-1” by Moody’s to a party rated “Baa3” of $ 27.7 million, as well as an overcollateralisation of $ 55 million.

Moody’s notes the experience of the AmeriCredit service agent and the resilience of its transactions in the event of an economic downturn, as well as the accumulation of improvements as the pool amortizes. Challenges, he adds, include the high proportion, 93.7%, of longer-term loans with initial terms of between 61 and 84 months, as well as the unsecured quality of the collateral.

Another risk cited for AmeriCredit as well as other auto debt transactions is the potential decline in used car prices.

“Despite the recent surge in used car prices due to pent-up demand and the shortage of new vehicles, used car prices risk falling if large volumes of leased vehicles run out of contract as well as Requirement. fades, ”says Moody’s.

Also on investors’ radar screens is a $ 1.2 billion auto debt transaction from Toyota Motor Credit Corp., its fourth securitization this year. It is backed by a pool of fixed rate motor vehicle retail contracts guaranteed by new or used cars.

Avis Budget Car Rental, meanwhile, launched a four-tranche $ 500 million securitization backed by a single lease of the fleet to the sponsor for use in its car rental business, according to Moody’s. The rating agency says the deal’s credit challenges include the non-investment grade sponsor and the inclusion of a 10% concentration limit for vehicles manufactured by Tesla, which allows the sponsor to add from Tesla electric vehicles to the fleet over time.


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