Subprime auto finance specialist Flagship Credit Acceptance is asking investors for more leeway in securitizing extended-term vehicle loans.
According to presale reports on Flagship’s next $355 million auto-loan securitization, the lender is removing the 2% collateral pool limit on loans over six years (72 months) that it plans to add to the deal during a three-month prefunding period for Flagship Auto Credit Trust 2020-1.
“Unlike previous FCAT securitizations FCAT 2020-1 will have no limit on loans with original terms greater than 72 months,” stated a report from Kroll Bond Rating Agency.
During a post-closing prefunding period, issuers can add additional collateral to pools without investor consent so long as the loans meet minimum criteria outlines in deal prospectuses. Flagship plans to add nearly 20% of the final portfolio balance (or $71.36 million) to the collateral during the prefunding period.
Currently, the identified portfolio of $236 million in new and used loans collected in FCAT 2020-1 has only 0.5% of its collateral (by balance) from loans with original terms beyond six years.
While the cap on loans over 72 months is removed, the prefunding period criteria states the prefunding-period collateral still cannot cause the weighted average original maturity of the portfolio to exceed 72 months.
The prefunding collateral changes were a factor in Kroll slightly increase its weighted average base-case cumulative net loss range to 11.5%-12.5% for the new deal, in comparison to the 11.35%-12.35% range that Kroll estimated for Flagship’s previous securitization that priced in November.
Flagship Credit Auto Trust 2020-1 includes a $233.7 million Class A tranche with preliminary AAA ratings from Kroll, DBRS Morningstar and S&P Global Ratings.
Projected losses for the new deal (Flagship’s 30th ABS transaction in eight years) are unchanged from FACT 2019-4 for both DBRS Morningstar (12%) and S&P (an expected cumulative net loss range of 12%-12.5%).
Both DBRS Morningstar and S&P stated the loan pool collateral has similar credit characteristics to Flagship’s prior deals, plus benefits from the inclusion of the called collateral from a terminated Flagship securitization that features loans with long-standing performance history.
