Subprime Auto ABS Volume Inches Up With Two New Issuances

By  Larissa Padden     lpadden@royalmedia.com

     Diana Asatryan    dasatryan@royalmedia.com

Subprime is a steady contributor to the auto ABS market, and it’s no wonder the space has attracted so many new entrants recently, according to Elen Callahan, director and head of consumer ABS research effort at Deutsche Bank. According to Deutsche Bank data, the top players in the space  – Santander Consumer U.S.A., Ally Financial Inc., and General Motors Financial Co. – comprise about 66% of total subprime auto ABS issuance so far this year.

Compared with the top three, Flagship Credit Acceptance LLC and Skopos Financial LLC – comprise around 3% and 0.6% to the subprime issuance pool year-to-date respectively – fall into the new-entrant category. Both companies came to the market with subprime ABS issuances in the past week.

First Rated Transaction for Skopos Financial

Rated by Kroll Bond Rating Agency (KBRA) yesterday, Skopos Auto Receivables Trust 2015-2 is the lender’s first rated ABS securitization. The $154 million transaction, backed by subprime auto loans, follows Skopos’ inaugural unrated transaction back in April.

The company operates in the deep subprime space. The average FICO score for this transaction is 543, with scores ranging from 460 to 625. Approximately 14% of the principal balance of loans in the SKOP 2015-2 transaction were made to borrowers that do not have a FICO score, according to the presale report.

Among the concerns for this transaction, KBRA cited the lender’s geographic concentration of dealerships.  “SKOP 2015-2 collateral has significant concentrations in Texas which could expose the securitization to adverse economic conditions affecting the state or region that could  increase delinquencies and losses. Loans originated to borrowers in Texas represent 47.73% of the outstanding principal balance of the initial pool and may increase to approximately 48.7% at the end of the prefunding period based on eligibility criteria.”

Post-Merger, Pre-IPO Flagship Comes to Market

Flagship Credit Acceptance LLC has come to market with a $450 million issuance backed by subprime auto loans, according to a presale report from Standards and Poor’s Friday. The FCAT-3 trust has a weighted average Fico of 591, relatively unchanged from the previous trust’s 590, a weighted average seasoning of 1.24, down from FCAT-2’s 2.13, and a slightly higher weighted average LTV of 119.37%, compared to 117.28% in the previous trust.

Approximately 20% of Flagship’s monthly auto loan origination volume are direct-to-consumer loans, according to S&P, which have performed better than indirect loans based on historical data.  The ratings company also notes that Flagship’s outstanding securitizations, with at least 12 months of performance, “all appear to be performing in-line to better than our initial expectations.”

The company has also filed an S-1 registration statement with the SEC for an IPO of common stock in April, which has not yet become effective. “It is unclear at this point how the company’s strategy and focus would change if it were to become a publicly traded company,” S&P wrote in the report.