Santander’s liquidity to prop up lender through pandemic

Photo by Mike Mozart via Creative Commons

Santander Consumer USA’s total funding and liquidity is likely to sustain the subprime lender through the COVID-19 economic crisis.

SCUSA has $51.4 billion in total funding and liquidity from four primary sources, including private financing, warehouse lines of credit, the asset-backed securitization market, and support from its parent company, Santander Holdings USA.

Santander provides SCUSA with 18% of its total liquidity through contingent funding, term funding, and revolving funding for a total of $9.2 billion.

The subprime lender also has secured $11.9 billion in revolving financing, and $9.3 billion in amortizing financing.

Yet, the largest source of liquidity for the Dallas-based lender — at 37% — comes from the securitization market. SCUSA, which was the largest issuer in 2019, has $18.8 billion in outstanding ABS, and issued an additional $2.2 billion worth of notes in the fourth quarter of last year.

There has been concern in the industry as to whether access to funds through capital markets would dry up as the coronavirus financially squeezes the industry. However, the fact that SCUSA has a bank parent company — which relies primarily on deposits for funding — provides wiggle room, should SCUSA need access to additional funds.

SCUSA also sets aside $5.0 billion in funds for dealer inventory financing and $4.5 billion in funds dedicated to its Chrysler Capital private-label financing agreement with Fiat Chrysler Automobiles.

Originations hit $31.3 billion for yearend 2019, 60% of the lender’s total liquidity. During fourth-quarter 2019, used-vehicle loans and leases made up 40% of originations.

Still, SCUSA’s large subprime portfolio, which makes up nearly 90% of its total auto outstandings, could push up credit losses, according to Fitch Ratings.

In fact, Fitch notes that some banks are in a riskier position than captive finance arms that focus on the financing and leasing of new vehicles purchased by prime borrowers. Fitch believes the credit performance of captive auto finance companies is likely to fare better than some banks, such as Ally Financial, Capital One Financial and Wells Fargo, which have a larger exposure to near-prime and subprime loans that are collateralized by used vehicles.

“We expect sharp increases in unemployment and declines in used-vehicle prices to push auto credit losses meaningfully higher, at least over the short term,” said Michael Taiano, senior director at Fitch.

Today, U.S. unemployment reached 17 million since March 19. Earlier this week, used retail SAAR for March dropped 13.5% year over year, according to Manheim.

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