Santander debuts $1.3B revolving ABS

Photographer: Angel Navarrete/Bloomberg

Santander Consumer USA is bringing $1.3 billion worth of nonprime loans to market with the debut of its revolving asset-backed securitization slated to close Nov. 26, according to Moody’s Investors Service presale report.  

The securitization pool consists of 66,522 contracts, with 43% of the pool comprised of new vehicles and 57% used. The weighted average original term is 72 months. However, only 20% of the loans in the pool are longer-loan terms greater than 72 months

Revolving securitizations are non-amortizing and pay down in five years, allowing the lender to add loans to the collateral pool as older loans are paid down and transferred out of the trust.

A five-year revolving period is considered a credit challenge, especially for collateral with weak credit quality. Also, the volatility in the used car market at the end of the revolving period is riskier for nonprime loans because falling used car prices can expose the transaction to a lower recovery rate and higher loss severity, and consequently a higher net loss.

The transaction’s net loss expectation is 20%; yet, SCUSA’s long history with ABS transactions mitigates the risk potential, Moody’s found. 

In fact, the inaugural deal is SCUSA’s seventh transaction of the year following three deals under the lender’s Santander Drive Auto Receivables Trust (SDART), which racked up $3.4 billion in subprime auto loan receivables. The lender also issued three deals under its Drive Auto Receivables Trust (DRIVE) shelf, which brought $3.8 billion in subprime auto loans to market. 

Santander joins Ford Motor Credit and Toyota Financial Services, which also have revolving ABS deals. TFS issued its first-ever revolving shelf — a $1.5 billion deal — on June 5, according to a presale report by S&P Global Ratings.

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