Building Up Experience and Scale
Entering the ABS market is contingent on market conditions, cost of funding, and the other sources of capital a company can access.
Financial institutions with shorter histories typically finance through private transactions, either amortizing or warehouse transactions. “Once they build up enough scale and performance history, then the next evolution in their financing plan may be to tap the securitization market, if possible,” said Kroll Bond Rating Agency Managing Director Eric Neglia.
Tempe, Ariz.-based Carvana, had $197 million outstanding on a floorplan facility used to finance used-vehicle inventory, as of yearend 2018. It also had $343 million of outstanding principal from senior unsecured notes due 2023.
Fair, too, has had its share of private funding. In late 2017, the Santa Monica, Calif.-based company secured a $200 million credit line from
Goldman Sachs for its rideshare business and another $200 million credit line from Credit Suisse for its consumer business, Bauer said. In December 2018, Fair scored a $385 million Series B funding led by SoftBank.
“With the credit lines we have in place, plus the [$50 million debt facility] from Silicon Valley Bank, and $100 million from Ally Financial Inc., we are well equipped to fund the current growth, but we are preparing the stage for early 2020 for a rating and being ready for the ABS market,” Bauer said.
Brian Ford, senior director of structured finance at KBRA, added that smaller companies like Carvana and Fair would most likely issue within the private 144A market. Compared with public securitizations, 144A transactions “have fewer disclosure requirements, which makes issuing in that market more cost-effective for smaller auto loan issuers,” he said.
