Monday, July 15, 2024

Santander Drive Auto Receivables Trust readies $1.5 billion in non-prime auto ABS

Santander Drive Auto Receivables Trust is preparing to issue about $1.5 billion in asset-backed securities, to be repaid from a pool of non-prime loans on new and used vehicles.  

The pending transaction has a class D, unlike the previous transaction, the Santander Drive Auto Receivables Trust, 2023-1, according to a pre-sale report from S&P Global Ratings. Citigroup Global Markets is the lead underwriter on the deal, which will repay notes through a senior-subordinate structure. Moody’s Investors Service notes that the collateral pool of loans finances automobiles, sports utility vehicles, and light-duty trucks.  

Each loan will amortize over a period of between four and 75 months, according to Moody’s. The loans have an average remaining size of $23,687, according to Moody’s. As for other asset characteristics, borrowers have a weighted average (WA) FICO score of 603, a loan-to-value ratio of 106%, and an annual percentage rate of 16.74%, the rating agency said.  

Moody’s noted that the pool has a marginally higher debt-to-income ratio of 38.5%, compared with 38.1% in the 2023-1 transaction. And in an environment where used car prices still have a ways to go before they normalize to pre-pandemic levels, Moody’s sees the potential decline in used car prices as a credit risk, if it imperils recovery rates.  

A reserve fund, over-collateralization, subordination and excess spread will provide credit enhancement to the notes, according to both S&P and Moody’s. 

Moody’s did note that it increased its cumulative net loss (CNL) expectation by 1.5 percentage points, compared with the SDART 2023-1.  

“The performance of 2022 SDART transactions and of recent managed portfolio vintages have been weakening, as a result of inflationary pressures including higher gas prices, higher borrowing costs as well as the elimination of stimulus funding in 2021,” Moody’s observed.  

Moody’s expects to assign ratings of P-1 to the A-1 notes; ‘Aaa’ to the A-2 through B notes; ‘Aa1’ to the class C notes; and ‘Baa2’ to the class D notes.    

S&P will assign ‘A-1+’ to the A-1 notes; ‘AAA’ to the A-2 and A-3 notes; ‘AA’ to the class B notes; and ‘A’ and ‘BBB’ to classes C and D.  


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