Stellantis Financial debuts inaugural securitization

First Investors Financial Services made its debut in the securitization market this month as Stellantis Financial Services (SFS), the captive for the eponymous carmaker formed by the merger of Chrysler Automobiles and Groupe PSA . Stellantis NV purchased longtime nonprime lender First Investors for $285 million in November 2021 , a move that created a captive finance arm for the OEM. SFS originated $540.5 million of loans last year and serviced a $1.2 billion portfolio at yearend. First Investors is a veteran securitizer, having issued 29 previous transactions dating back to 2002. Its latest deal, which had a $311.6 million face value, was issued in five tranches. The securitized loans had an average current principal balance of $22,389, weighted average original term of 71 months and weighted average interest rate of 12.97% — its lowest level since at least 2018. Collateral characteristics were largely unchanged from First Investors’ August 2021 securitization aside from the new vehicle and direct lending ratios. Specifically, the percentage of new-car loans declined to 5.2% from 15.6%. Industrywide, new-vehicle financing has taken a hit because of the global inventory shortage. Meanwhile, the percentage of direct contracts in Stellantis Financial’s current securitization increased to 62.3% from 44.9%. That ratio marked the highest direct lending percentage for the lender since early 2019, when 64.7% of the loans in its securitization were originated directly to consumers. Stellantis Financial originates direct loans in two ways. While a sliver of the loans — 0.1% in the current securitization — are made through direct marketing to consumers who wish to refinance the auto loans they obtained from other lenders, the bulk — 62.2% in this transaction — are funneled through the lender’s alliance partners. Alliance partners SFS’s alliance program, which started at First Investors in 2008, requires SFS to perform all marketing, credit underwriting, funding and verification functions on the originated loans. Upon closing, the loans are sold to SFS at par value. SFS pays a fee to the alliance partner for each funded loan. SFS has 10 alliance partners, the most recent of which was added in the past few months. On the flip side, its LendingClub partnership expired in January 2021, though SFS continues to service loans originated by LendingClub for other investors. In the coming year, SFS plans to add new alliance partners and expand existing partnerships, according to Kroll Bond Rating Agency ’s securitization presale report. The increase in direct loans in SFS’s securitization contributed to a decline in intended losses for the transaction. Broadly, direct collateral loans tend to perform better than indirect collateral loans. KBRA’s expected lifetime cumulative net losses decreased to 8.79% from 8.95% in First Investors’s previous deal. S&P Global , too, reduced loss expectations for the securitization, to a range of 9.25% to 9.75% from 9.75% to 10.25% in the previous transaction. “We believe the collateral characteristics of the series 2022-1 pool are relatively stronger compared with series 2021-2 due to the increased proportion of direct contract originations, which perform relatively better than indirect contract originations,” S&P wrote in its presale report. “[The company’s] outstanding transactions are also performing better than our prior expectations, and monthly extension rates on securitized pools have declined since their peak in early 2020.” Looking ahead In addition to tacking on new alliance partners, Stellantis Financial plans to grow its dealer base, which currently numbers 3,572 franchised dealers. In 2021, though, SFS deactivated 508 dealerships due to lack of dealer productivity and loss performance. Looking ahead, growth in the dealer base will focus on dealers and dealership groups whose customers have previously filed for personal bankruptcy, Kroll noted. About 15% of SFS’s outstanding originated collateral consists of borrowers who have previously filed for personal bankruptcy. SFS anticipates that its origination mix will reach more of an even split between direct and indirect loans and will include a higher percentage of used cars, Kroll added. One final change in SFS’s latest securitization is that the transaction does not include a backup servicer, a role previously occupied by Wells Fargo. KBRA was unfazed by the development, noting in the presale report that it considers “the financial strength, experience in the automotive industry and infrastructure resources of SFS’s investment-grade parent, Stellantis, to be a mitigant to this change.” Auto Finance Risk Summit, the premier event for risk and compliance management in auto finance, returns April 25-26 in San Diego. This event is the central resource for education and networking focused on best practices in risk management and will prepare your team for the dynamics of the evolving auto finance market. To learn more about the 2022 event and register, visit www.AutoFinanceRiskSummit.com .

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