Bank of the West closed its first auto asset-backed-securitization since 2015 last week, a $750 million transaction backed by prime retail installment contracts, according to a presale report by Moody’s Investor Service.
Fifth Third Bancorp — which has also not securitized since 2015 — issued a $1 billion ABS that closed on Sept. 20. Fifth Third had previously engaged in the asset-backed securities market in November 2015, but for Bank of the West, the absence from the auto ABS market extends back even longer, to May 2015.
“Last year, we opted to fund our auto loan portfolio through available internal liquidity sources,” Joe Rauch, senior public relations analyst for Bank of the West, told Auto Finance News. “Currently, however, the asset-back securities market is a constructive one in which issuers can achieve good funding outcomes, reflected in high levels of investor interest, issuance volumes, and pricing.”
On the other hand, several analysts and rating agencies have noted the undesirable funding outcomes in the ABS market. S&P Global’s senior director Amy Martin, for example, was expecting some mergers and acquisitions by now, but that just hasn’t happened yet.
“I don’t think there is a lot of new equity flowing into this space,” Martin previously told AFN. “… We’re not seeing the same capital flow into the space that we saw in 2011 through 2013.” That lack of funding may cause some of the smaller players in the space to turn to the whole loan sales market for more liquidity, she added.
Meanwhile, the credit quality of the collateral in Bank of the West’s pool — Bank of the West Auto Trust 2017-1 — is weaker than that of the pool backing its last auto ABS in 2015. The 2017-1 pool has a weighted average Fico of 745, 29 points lower than that of the 2015-1 pool, according to the presale report.
Additionally, about 60% of the pool balance has an original term greater than 72 months, an increase over the last two ABS transactions which were backed by pools comprised of less than 40% of such loans. “Longer term loans carry risks stemming from their slower amortization schedules that lead to negative equity for the borrower and a prolonged period during which the loan is exposed to negative credit events and macroeconomic factors,” Moody’s reported.
Bank of the West’s serviced portfolio consisted of indirect auto receivables totaling $4.17 billion as of June 30, a slight decrease from its $4.22 billion receivables outstanding the same time a year prior, according to a S&P Global presale report.
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