Arivo Acceptance in ‘expansion mode’ on heels of second securitization
Arivo’s second outing in the secondary market was well received by investors
Subprime lender Arivo Acceptance is in growth mode after its second entrance into the auto asset-backed securities market and increasing origination volume 2020. Many subprime lenders, such as Consumer Portfolio Services (CPS), reported shrinking market share on the year as a result of risk-weighted adjustments to their underwriting practices and increased low-interest competition.
“We have seen a number of our competitors pull back,” Arivo Chief Executive Robert Avery told Auto Finance News. “Currently, we’re in expansion mode. We’re adding more dealers and expanded into new markets,” he said, such as Alabama, Georgia, North and South Carolina and Ohio.
Arivo competes with other subprime lenders such as CPS, Exeter Finance, Flagship Credit Acceptance, and Global Lending Services, Avery said.
“We have approached the market a little bit differently than some of our competitors,” Avery said. “We’ve simplified the processes, so instead of requiring the dealer or the customer to provide us with documents to satisfy the stipulations on the loan, we attempt to do those verifications online through different sources.”
As a result, origination volume almost doubled year over year to nearly $200 million in 2020, Steve Pachella, Arivo’s chief financial officer, told AFN. The Sandy, Utah-based lender logged 30-plus day delinquencies in January at 2.11%. Toward the end of 2020, those numbers were below the 2% mark, Chief Executive Avery noted.
Increased investor sentiment, Arivo’s strong portfolio performance, and seasoning from its first deal in 2019 assisted in the lender’s second entrance into the auto ABS market, a $193 million deal back by subprime receivables.
With its second deal, the lender was able to add a single B tranche and decrease its target overcollateralization rate to a target of 1.25%, down from a 14% target range in its 2019 issuance.
“We knew where we were going prior to our first securitization, but because we didn’t have enough history to be able to prove it substantially, it was more difficult for us to get the better terms,” Pachella said. “We now have a lot more risk history and loss curves that we can show to really prove out the fact that that was a viable tranche in the market, and that the investors would want to take that risk.”
In fact, the single B tranche was 8.25 times oversubscribed, Pachella said, and the issuer’s investor base more than doubled from 12 in its inaugural 2019 transaction.
Continued entrance into the secondary market will play a key role in Arivo’s growth goals, Pachella said.
“Staying within our credit parameters and our estimated losses, we’re looking to grow as fast as we can,” Pachella said. “If we can get ourselves into the $500 to $600 million range of originations per year — we think that’s the sweet spot and what’s available to us — we would like to get ourselves up to doing a couple transactions per year at the $250 million range,” he said.
Arivo Acceptance was founded in 2017 and has a managed portfolio of around $325 million.
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