After several years of rising collateral losses in U.S. subprime auto loan asset-backed securities (ABS), cumulative net losses (CNLs) appear to have stabilized, albeit at relatively high levels. On a segment basis, S&P Global Ratings' subprime auto loan static index (ALSI) is showing that the 2016 vintage, with 27 months of data, is performing consistently with the 2015 vintage, as are the 2017 and first- and second-quarter 2018 vintages (see chart 1). On an issuer basis, loss deterioration abated with the 2017 vintage; the majority of the securitizers are reporting stable-to-lower losses on these securitized pools compared to those in 2016. These improvements appear to be correlated with the reduction in industry-wide subprime originations in 2016 and 2017 and the implementation of tighter credit standards. However, renewed growth in subprime lending, which began in the second half of 2018, could intensify competitive conditions and lead to weaker performance.

Loan Growth And Competitive Environment Drove Losses Higher

The upward ascent in S&P Global Ratings' index loss levels through 2015 and issuer-based loss deterioration through 2016 corresponded with the rapid growth in subprime lending, which accelerated at a compound rate of 15.9% from 2010 through 2015. During this time period, economic conditions would have been supportive of strong performance as unemployment levels were declining, falling to an average of 4.9% in 2016 from 9.6% in 2010. Chart 2 below juxtaposes CNLs for S&P Global Ratings' subprime index through months 12, 24, and 36 (as appropriate) for the various securitization vintages with subprime industry origination volume for the respective year. As evidenced in the graph, CNLs at month 36 peaked with the 2015 vintage, which is the same year that subprime auto loan originations reached a post-recession high.

Some of the initial loan growth was due to pent up demand for vehicles, the purchases of which stalled due to credit markets freezing during the Great Recession. Additionally, well-established finance companies and banks normalized their credit standards in an effort to increase their lending volumes after having severely curtailed them during the recession. Also, new entrants to the market, some funded with private equity, expanded rapidly.

Banks, which hold the largest share of subprime loans, were particularly formidable competitors. For example, Capital One (CapOne) grew its total auto loan portfolio by approximately 10% and 15% in 2015 and 2016, respectively (loans with less than 620 FICO score represented approximately 31% of its outstanding portfolio as of the end of 2015 and 2016), while Wells Fargo & Co. expanded its portfolio 7% and 6%, respectively. While these banks didn't securitize their auto loans, we understand from auto loan ABS issuers that their expanded presence was making it more challenging for the smaller lenders to maintain their loan volumes and operating profit margins. The large banks' access to low-cost bank deposits and better economies of scale (given their size) allowed them to offer more competitive pricing than most of their peers. CapOne's and Wells Fargo's auto loan portfolios stood at $47.9 billion and $61.5 billion, respectively, as of year-end 2016.

From 2014 to mid-2016 as competition intensified, several subprime auto ABS issuers sought to offset thinning profit margins (due to less favorable pricing terms) with higher loan volume. Some achieved these goals in myriad ways, such as liberalizing their credit standards by offering more attractive terms, including higher loan-to-value ratios (LTVs) and longer loan terms, as well as buying loans further down the credit spectrum. As shown in table 1 below, LTVs on subprime securitized loans rose to a record of nearly 115% in 2014 and the weighted average FICO dropped to a low of 572 in 2015. In addition, certain companies may have sacrificed adequate controls and dealer oversight for the sake of growth. Two state regulatory agencies settled lawsuits against Santander and Exeter Finance Corp. (Exeter) alleging that they made loans through 2014 and 2015, respectively, to customers whom they should have known didn't have the wherewithal to repay them.

Degradation of credit standards, overly optimistic credit models that were trained on recession and early economic recovery data, and lax oversight during this hyper-competitive period, in our view, contributed to higher index losses in 2015 relative to 2014. These factors also caused most subprime auto loan ABS issuers to report higher year-over-year CNLs on their 2015 and 2016 securitizations. Lower recovery rates, especially in 2016, also contributed to higher CNLs (see chart 3). The cumulative recovery rate through month 27 for the 2016 vintage is only 39.5% compared to 42.4% for the 2015 vintage at the same point.

Table 1

ALSI Performance Is Affected Greatly By Its Composition

Beginning in 2015, higher CNLs in S&P Global Ratings' subprime ALSI have also been due to the index becoming more heavily weighted towards deep subprime (pools with CNLs of 20% or greater). This is largely attributable to Santander ramping up its subprime lending activity and introducing its deep subprime ABS shelf, DRIVE. Santander completed four DRIVE transactions in 2015, three in 2016, and five in both 2017 and 2018. As a result, the mix of DRIVE collateral in our subprime ALSI index increased to 24% in 2015 from zero the year before and has subsequently changed as outlined in table 2 below (for first- and second-quarter 2018, the DRIVE deals represent 22% and 20%, respectively).

Table 2

Since most of the DRIVE transactions completed in 2015 and 2016 are trending towards a CNL of 24.75%-29.00%, which is considerably higher than the 12.25%-14.00% loss level that Santander's Santander Drive Auto Receivables Trust (SDART) mainstream subprime deals are tracking toward, the inclusion of this deep subprime platform is pulling up the index's average losses. Its inclusion is also masking performance trends from the other securitizers. For example, the drop in DRIVE's contribution to 19% in 2016 (from 24% in 2015) is offsetting higher losses that are being reported by the majority of that year's securitizers. Similarly, the increase in DRIVE's contribution to 33% in 2017 is offsetting the improvement in losses we're seeing across most of the issuers' 2017 transactions.

Because of the significant influence that the DRIVE deals have had on the subprime ALSI, we have created the modified ALSI, which excludes the DRIVE deals and two other two deep subprime issuers, American Credit Acceptance (ACA) and Exeter. On this basis, the 2015 modified subprime index is trending close to the overall 2013 vintage, as shown in chart 1. Separately, one can also see that after excluding the deep subprime issuers, CNLs are 7% higher for the 2016 modified subprime (MSP) index relative to its 2015 counterpart (CNLs are 8.52% at month 27 for 2016 MSP index compared to 7.95% for 2015 MSP). Moreover, the 2017 MSP index at month 15 is reporting CNLs of 4.56%, which is slightly lower than the 4.80% reported by the 2016 MSP index at the same time.

2016-2017 Reduced Originations And Re-Alignment of Credit Standards Has Led To Improved Performance

Having seen the impact of their looser credit standards, many finance companies, as well as certain banks, scaled back their loan volumes by tightening their credit policies and procedures. Wells Fargo's outstanding auto loan portfolio shrank by 6% in 2017; Santander's contracted by approximately 5% in both 2016 and 2017; and Exeter's declined 3% in 2016, after having grown nearly 50% in 2014 and 10% in 2015. These lower loan volumes are consistent with the Federal Reserve Bank of New York's data that shows that subprime lending activity declined approximately 5% in 2016 and 4% in 2017. As a result of implementing more stringent credit standards, as well as eliminating poorly performing dealers and enacting tighter operational controls, segment-specific credit performance has started to stabilize. More importantly, the majority of the 2017 issuers are reporting stable to slightly lower losses on their 2017 securitizations compared to those in 2016. (For issuer-specific performance, see the Subprime Issuer Snapshots section of this report.)

2018-2019 Off To The Races Again?

After two years of declining originations, subprime auto loan volume grew 3% in 2018 and appears poised to continue climbing this year. In fact, Santander's auto loan originations grew 34% in 2018, with the majority of the increase coming from Chrysler Capital loans that have FICOs of less than 640. Also, Exeter's managed portfolio expanded 25% in 2018 and continues to grow this year, while Global Lending Services LLC (GLS), one of the newest ABS securitizers, nearly doubled its portfolio (albeit from a relatively low base) to $1.5 billion as of year-end 2018.

While Wells Fargo's 2018 retreat from auto lending (its portfolio contracted 17% to $48 billion as of Dec. 31, 2018, from $58 billion as of Dec. 31, 2017) has created opportunities for smaller competitors to grow, we wonder if loan growth is coming at the expense of credit quality, as we saw in 2015. Also, with the Federal Reserve announcing that they are unlikely to raise interest rates this year, those auto executives who feared that such a move, in itself, could led to a recession, may now be more sanguine. This could provide fodder for lenders to buy deeper down the credit spectrum and weaken lending standards. Lower new vehicle sales may also contribute to more aggressive underwriting as lenders seek to maintain lending volumes. S&P Global Ratings' economic forecast pegs the odds of a recession (12 months out) at the 20%-25% range, and we're predicting new vehicle sales of 16.6 million units this year compared to 17.3 million in 2018.

Loan terms lengthen

In the first quarter of 2019, we noticed a marginal decline in the credit quality of some of the issuers' pools. One of the most notable changes was the increase in 73-75 month loans in AmeriCredit's and Santander's pools. For example, the percentage of these loans in AmeriCredit's series 2019-1 increased to approximately 16% from 6% in 2018-1. While the vast majority of AmeriCredit's longer-term loans have been provided for new vehicle purchases (as opposed to used vehicles) and the weighted average FICOs and LTVs for these loans (594 and 102% for 2019-1, respectively) have been more conservative than for AmeriCredit's overall pools (580 and 107% for 2019-1), the weighted average FICO of these loans has migrated downwards from 624 on the 2018-1 transaction.

Santander's SDART 2019-1 series increased its percentage of 73-75 month loans to approximately 17% from 10% in 2017-3. Unlike AmeriCredit's pools, the FICOs of these loans were initially lower (590 to 600 from 2017-1 to 2018-3) than for SDART's overall pools (608 to 614 from 2017-1 to 2018-3). Later, beginning with SDART 2018-4, the weighted average FICO for 73-75 month loans has been higher than that of SDART's overall pools. Similar to AmeriCredit, however, the weighted average FICO on these loans has recently fallen (620 for 2019-1 compared to 641 for 2018-5). On a positive note, the weighted average LTV for these loans remains lower (99% for 2019-1) than for the overall pool (107% for 2019-1), indicating that Santander is limiting the higher severity of loss on these loans (relative to shorter-term loans) if they are repossessed.

Given the higher cost of new vehicles due to added safety features and the consumers' shift to buying larger, more expensive vehicles, affordability has become an issue that is being addressed with longer loan maturities. However, slower amortization of these loans can lead to higher losses if the vehicles are repossessed. Our analysis incorporates this risk by analyzing vintage loss performance by term and similarly determining a base-case loss level for each loan term. The challenge is that often lenders start longer-loan-term programs (including 84 months) with very conservative underwriting standards that result in low losses, and then gradually relax those parameters over time, resulting in higher losses.

Additional trends

We've also noticed slightly higher LTVs for certain issuers. Exeter's LTVs have migrated up to approximately 113% for series 2019-2 from 110% for its series 2017-1 transaction, and at the same time its weighted average FICO declined to 556 from 577. The changes in Exeter's pools may be a competitive response to other lenders, namely GLS, which provide higher LTVs (i.e., 117% for GLS 2019-1). Higher LTVs allow the dealers to add back-end products, such as extended warranties and gap insurance. We've also observed a weaker mix of lending programs for certain issuers, including Consumer Portfolio Services [CPS].

The collateral characteristics shown in table 1 for 2018 and first-quarter 2019 do not demonstrate such potential liberalization because they are skewed by Santander, whose deals (inclusive of DRIVE and SDART) represent approximately 43% and 50% of collateral for the respective periods. The FICO elevation to 587 and 590 in 2018 and first-quarter 2019, respectively, from 578 in 2017 was largely driven by Santander's pools. The average FICO on its 2018 DRIVE deals increased to 576 compared to 568 in 2017, and for the SDART transactions, the average FICO rose to 614 from 610 for its 2017 deals.

Aside from collateral characteristics, we've also discerned a slight increase in losses for some of the later 2018 securitizations. For example, the DRIVE 2018-3 and SDART 2018-3 transactions at month eight and nine, respectively, are reporting higher losses than the associated 2017 and earlier 2018 issuances. Also, Exeter's 2018-3 issuance is reporting the highest level of losses since its 2016-2 pool, which is trending toward a loss level of 22%-23%.

Credit Enhancement Has Kept Paced With Growth In Deep Subprime Issuance

As the subprime auto loan ABS sector has become more heavily weighted toward deep subprime, our base case CNL levels have increased. Chart 4 illustrates that our base case expected CNL at the time of issuance increased to a weighted average of 20.3% in 2018 from 12.4% in 2011. At the same time, hard initial credit enhancement at closing for the 'AAA'-rated bonds rose to 53.7% from 35.8%, and the all-in 'AAA' credit enhancement, including excess spread (as measured by breakeven cash flows), rose to 57.3% from 44.1%. These higher expected CNLs (ECNLs) also reflect the slightly higher ECNLs we placed on several 2017-2018 issuances, as compared to the issuers' earlier ones. Companies in this group include CPS, Exeter, First Investors Financial Services Inc., Flagship Credit Corp., and Prestige Financial Services Inc.

Rating Stability

Despite losses trending higher in subprime auto loan ABS, rating upgrades continue to surpass downgrades by a wide margin. For 2018 and year-to-date through March 31, 2019, we've upgraded 348 classes and downgraded only three. The three downgrades were attributable to the Honor Automobile Trust Securitization (HATS) 2016-1 issuance (see the Snapshot section below for more information). Upgrades continue to be the result of deleveraging that occurs in these transactions due to their sequential pay structures, which builds credit enhancement for the senior classes. In addition, even in cases where CNLs are slightly higher than our base-case assumptions, to the extent credit enhancement remains at targeted levels and excess spread remains strong, many subordinated classes become eligible for upgrades, especially after the associated pool has weathered its peak loss period.

Table 3

Issuer Static Pool Performance Compared With The ALSI

Methodology

The charts below illustrate the securitization performance for subprime securitizers that have S&P Global Ratings-rated ABS transactions. We define subprime transactions as those for which we have an expected base case level of losses of 7.5% or higher. The issuers' performance is also compared to that of the overall subprime ALSI. We exclude the transactions from CarNow Auto Receivables Trust (CarNow), DriveTime Automotive Group Inc. (DriveTime), and Credit Acceptance Corp from our indexes due to their different business models. The first two operate used vehicle dealerships and are in the business of selling and financing vehicles; whereas, the other companies in our index only finance the vehicles. Credit Acceptance is different from the rest of the subprime finance companies because it actually makes dealer advances, which are in turn secured by the underlying retail installment sales contracts (auto loans). Further, the amount they advance on the auto loans is substantially lower than that of the other finance companies in our index.

In the comparative graphs below, some of the issuers have more months of performance than the overall index. That's because our index displays performance up to the last month for which all transactions in the cohort have performance. Since some of the less frequent issuers securitized early in the associated year, they have more months of performance data than what is aggregated in our index.

2016 Vintage Performance

Issuer-specific CNLs on the 2016 securitizations at month 27 range from a low of 5.99% for AmeriCredit's S&P Global Ratings-rated transactions to a high of 31.65% for JD Byrider (also known as CarNow). The weighted average CNL for all transactions included in S&P Global Ratings' subprime ALSI is 10.68% through month 27.

Key observations

• Issuers reporting losses below the ALSI weighted average through month 27 are AmeriCredit Automobile Receivables Trust (AmeriCredit), Foursight, CPS, First Investors, Flagship, Prestige, SDART, and Tidewater Auto Receivables Trust (Tidewater). However, given the rate at which the CPS pools are taking losses, its transactions are likely to have higher CNLs than the overall index in the coming year.
• We noted in the article, "Using Pool Factors To Analyze U.S. Subprime Auto Loan ABS Credit Losses," published Aug. 21, 2018, that in some cases it is insufficient to analyze performance only by month outstanding, and that the rate of collateral paydown needs to be considered as well. For example, at month 27, the pool factors for frequent issuers' youngest 2016 transactions range between a low of 24% for Westlake's 2016-4 deal to a high of 48% for CPS' 2016-4 issuance. This explains our lower ECNL level for Westlake's 2016 transactions of approximately 13.30%-14.25% compared to that for CPS' transactions of 18.75%-19.75% despite CPS currently having lower weighted average CNLs on its pools than Westlake.
• United Auto Credit Securitization Trust's (UACC's) two 2016 transactions have already paid in full. Their faster paydown reflects their short weighted average original maturity on their loans (approximately 41 months and 40 months for 2016-1 and 2016-2, respectively).
• Two originators, Honor and Sierra, have ceased operations (please see their respective issuer snapshots for more information). The previously high level of extensions in Honor's pool and its servicing transfer have contributed to the unusual shape of its CNL curve.

2017 Vintage Performance

Issuer-specific CNLs on the 2017 securitization through month 15 range from a low of 3.09% for AmeriCredit to a high of 18.60% for CarNow. The weighted average CNL for all transactions included in S&P Global Ratings' subprime ALSI is 6.22% through month 15.

Key observations

• Issuers reporting losses below the ALSI weighted average through month 15 are AmeriCredit, CPS, First Investors, Flagship, GLS, Prestige, and SDART.
• Through month 17, Exeter is reporting higher losses (8.05%) on its pools than GLS (6.37%). This was a contributing factor to our establishing a slightly lower ECNL level on GLS' recent transactions compared to those of Exeter.
• Issuers with substantially higher than index-average losses continue to be JD Byrider, DriveTime, ACA, and UACC.

2018 Vintage Performance

Issuer-specific CNLs on the 2018 securitization through month 12 range from a low of 2.11% for Flagship to a high of 9.42% for ACA (see chart 7). AmeriCredit didn't issue in the first quarter of 2018 due to lingering effects of a planned servicing system conversion at year-end 2018. The weighted average CNL for all transactions included in S&P Global Ratings' subprime ALSI is 4.66% through month 12.

Subprime Issuer Snapshots

Below are summary profiles for each of the subprime auto loan ABS issuers for which S&P Global Ratings has outstanding ratings. These issuer specific profiles include CNL graphs (performance is generally through Feb. 28, 2019), a collateral summary table, and our initial and current views on cumulative net losses for each outstanding transaction.

Each transaction collateral pool stratification reflects the final pool. In some instances, the collateral pool stratifications may have changed slightly from the presale. Most of the changes occurred with transactions that included prefunding, and we've updated the pool information to account for the final pool after the prefunding period ended.

AMERICAN CREDIT ACCEPTANCE RECEIVABLES TRUST

Credit analysts:  

Linda Yeh, New York (1) 212-438-2520; linda.yeh@spglobal.com

Peter W Chang, (1) 212-438-1505, peter.chang@spglobal.com

Issuer profile

American Credit Acceptance (ACA) is headquartered in Spartanburg, S.C., and was founded in 2007. ACA is privately owned by trusts controlled by George Johnson (79.4%), other investors (12.4%), and ACA management (8.2%). The company provides financing to independent and franchised automobile dealerships, and underwrites three lines of auto loans: Tier 1 Strategic (CarMax), which comprises the majority of its originations; Tier 2 Franchise (motorcycles, other large dealer groups, including franchised dealers), which comprises approximately one-third; and Core (generally 5% or less).

Key facts and observations

• ACA's retail auto loan portfolio totaled approximately $2.4 billion as of Dec. 31, 2018, a 19% increase over the prior year. The company has been consistently profitable since 2009.
• With the exception of the 2016 transactions, the company's oustanding transactions are performing in line with our original expectations. Losses for the 2016 transactions are trending 150 to 250 basis points higher than our original expectations. We expect all of the outstanding transactions from 2016 and onwards to lose between 26.00%-29.00% (see table 4).
• The 2015-3 transaction, which was cleaned up in April 2019, experienced CNLs of 25.5%. We attribute its lower loss level (relative to our projected loss levels on its outstanding transactions) to the inclusion of highly seasoned, called collateral from other transactions.
• CNLs for the 2017-3, 2017-4, and 2018-1 issuances are trending better than the 2016 and first half 2017 issuances. We believe this could be due to ACA's shift toward originating a greater percentage of loans out of its Tier 1 Strategic channel, which performs slightly better than those originated out of its Tier 2 Strategic or Core channels.
• ACA's average cumulative recovery rate on its 2016 pools through month 28 is approximately 39%, slightly better than that for the 2015 pools, which was 37% at the same seasoning point. The cumulative recovery rate on the 2017 pools through month 14 is approximately 35%, slightly lower than the 36% and 37% rates for 2015 and 2016, respectively, through the same seasoning point.
• ACA's weighted average LTVs have generally declined since peaking at approximately 133.0% for 2016-1, and the percentage of loans without a FICO has decreased from 13.8% for 2016-3 to 10.8% for 2019-1. Seasoning on the pools has fluctuated depending upon whether they have included clean-up collateral from other pools, which was the case for 2015-3, 2017-2 through 2018-1, as well as 2018-3 and 2018-4 transactions. Concentration in long term loans with an original term of 61-72 months ranges between 85.0% to 90.0% for pools issued between 2016 to the first quarter of 2019.
• In March 2019, we raised our ratings on 19 classes and affirmed two ratings on nine transactions (see "Ratings Raised on Nineteen Classes From Seven American Credit Acceptance Receivables Trust Deals; Two Ratings Affirmed," published March 7, 2019).The raised ratings included ratings on class E notes from the 2017-3 and 2017-4 transactions, which were originally rated 'BB- (sf)'.

Performance

Table 4

Table 5

AMERICREDIT AUTOMOBILE RECEIVABLES TRUST

Credit analysts:  

Jenna Cilento, New York (1) 212-438-1533; jenna.cilento@spglobal.com

Rahel Avigdor, New York (1) 212-438-4067; rahel.avigdor@spglobal.com

Issuer profile

AmeriCredit Financial Services Inc., doing business as GM Financial, a subsidiary of General Motors Financial Co. Inc. (GMF Co.; formerly known as AmeriCredit Corp.; 'BBB/Stable/-'), was founded in 1992; and was acquired by General Motors Co. in 2010. In North America, GM Financial offers full-spectrum lending and leasing through GM-franchised dealers under the GM Financial brand. It also offers a subprime lending product through non-GM franchised dealers and select independent dealers under the AmeriCredit brand. The company continues to increase its share of originations for GM-manufactured vehicles through GM-affiliated dealers. Its penetration rate for U.S. GM retail sales increased to 49.1% in 2018 from 39.2% in 2017. It has been the exclusive subvented loan provider for GM in the U.S. since January 2016.

Key facts and observations

• GM Financial's consumer finance receivable portfolio in North America totaled approximately $25.4 billion as of Dec. 31, 2018, a 28% increase from the prior year. The company earned net income of $1.57 billion in 2018.
• Beginning with its series 2016-1 pool, it now includes loans with original terms of 73-75 months. The percentage of these loans in its pools has increased succesively to 16.43% (series 2019-1) from 2.81% (series 2016-1). However, the pools' weighted average proprietary scores and FICOs have generally improved (proprietary score increased to 247 for series 2019-1 from 244 for series 2015-4,and FICO score rose to 580 for series 2019-1 from 567 for series 2015-4). Also, the weighted average LTV declined to 107 for series 2019-1 from 111% for series 2015-4.
• The company's outstanding S&P Global Ratings' rated series 2014 through series 2017 transactions are all performing better than our original expectations. The series 2014-4 through series 2015-3 transactions are expected to experience CNLs of less than 9.00%. We currently expect the subsequent issuances to incur slightly higher losses, in the range of approximately 9.00% to 10.25%.
• The 2015 and subsequent vintages have been affected by slightly lower recovery rates. Through month 24 the average recovery rates have declined to 45.8%, 44.10%, and 44.50% for the S&P Global Ratings' rated 2015, 2016, and 2017 pools, respectively, from 48.50% for the 2014 pools.
• In December 2018, we raised 10 ratings and affirmed 18 ratings on eight of its transactions (see "AmeriCredit Automobile Receivables Trust Ratings Raised On 10 Classes, Affirmed On 18 From Eight Transactions," published Dec. 21, 2018).

Performance

Table 6

Table 7

AVID ACCEPTANCE LLC

Credit analysts:  

Rahel Avigdor, New York (1) 212-438-4067; rahel.avigdor@spglobal.com

Amy S. Martin, New York (1) 212-438-2538; amy.martin@spglobal.com

Issuer profile

Avid, a subprime auto finance company, was founded in 2009 by Scott Scharman, Curtis Rudd, and Ben Larisch. The company is headquartered in Salt Lake City, with approximately 60 full-time employees and operations in 17 states. All of the company's underwriting and servicing is conducted from the Salt Lake City headquarters. Avid is one of three finance companies residing under the broader Quoros Group umbrella (the other two are Tetra Financial Group and a commercial real estate finance business). Scharman (holding 79.9% of shares) is the primary owner of all the businesses under the Quoros Group. Avid primarily focuses on extending credit to borrowers who have filed for either Chapter 7 or 13 bankruptcy. This has represented more than 90% of the company's business historically.

Key facts and observations

• For the year ended Dec. 31, 2018, Avid's retail managed portfolio was approximately $144 million, up 40% from approximately $103 million a year earlier.
• In January 2018, Avid completed its first auto loan ABS, with the ratings on the notes ranging from 'A (sf)' to 'BB- (sf)'.
• Avid's 2018-1 transaction, with 14 months of performance and a pool factor of 60.14%, has experienced CNL of 3.60% and cumulative recoveries are at 47.63%.

Performance

Table 8

Table 9

CARNOW AUTO RECEIVABLES TRUST

Credit analysts:  

Rahel Avigdor, New York (1) 212-438-4067; rahel.avigdor@spglobal.com

Amy S. Martin, New York (1) 212-438-2538; amy.martin@spglobal.com

Issuer profile

Byrider Finance LLC (Byrider), which conducts business as CarNow Acceptance Co., was founded in 1992 in Carmel, Ind. and was sold in 2011 to Altamont Capital and senior management. As of Oct. 31, 2017, the company consists of 27 company-owned stores located in Indiana, Ohio, Pennsylvania, Kentucky, and Tennessee, as well as franchisee-owned stores located across 35 U.S. states. Byrider securitizes auto loans only from company-owned stores. Each of its stores has a dedicated onsite service center where borrowers can take their vehicles for normal maintenance and repair services. In addition, the company offers 24-month/24,000-mile or 36-month/36,000-mile warranties depending on the state.

Key facts and observations

• The company's managed portfolio totaled approximately $377 million as of Dec. 30, 2018, a 6.3% increase over the prior year. The company has been unprofitable since 2015, but according to management its losses are narrowing. The company rolled out a new scorecard (ARE 2.0) in early 2016, and has since rolled out two additional updates (ARE 2.5 and ARE 3.0).
• The company has two outstanding transactions: 2016-1 and 2017-1. Its 2016-1 transaction has CNLs of 31.65% through month 27, which is approximately 100 basis points lower than its 2015-1 issuance at the same seasoning point, which paid off at month 31 with CNLs of 34.25%. Our expected CNL for 2016-1 is 33.0%-34.0%. The 2017-1 transaction, which has 14 months of performance, is experiencing lower losses than the 2016-1 series at the same seasoning point (18.6% compared to 22.0%) and appears to be performing better than our original CNL expectation of 33.0%-34.0%.
• In May 2018, we raised 2016-1 class C and D notes' ratings to 'A- (sf)' and 'BBB+ (sf)' from 'BBB (sf)' and 'BB (sf)', respectively (the class A notes had been retired) and affirmed our 'A (sf)' rating on the class B notes (see "CarNow Auto Receivables Trust 2016-1 Ratings Raised On Two Classes, Affirmed On One," published May. 1, 2018).
• The maximum potential ratings on CarNow's notes are capped at 'A (sf)' (see "Presale: CarNow Auto Receivables Trust 2017-1," published Nov. 30, 2017, for background on this rating cap).
• While not apparent from the pool characteristics below, in our view the 2017-1 pool has higher quality collateral than the 2016-1 pool. Approximately 79% of the loans in these pools are in the least-risky tier up from 57% for 2016-1.

Performance

Table 10

Table 11

CPS AUTO RECEIVABLES TRUST

Credit analysts:  

Peter W Chang, CFA, New York (1) 212-438-1505; peter.chang@spglobal.com

Ines A Beato, (212) 438-9372, ines.beato@spglobal.com

Issuer profile

Consumer Portfolio Services Inc. (CPS) was founded in 1991 and is headquartered in Las Vegas. The company provides indirect automobile financing to individuals with past credit problems, low incomes, or limited credit histories. CPS purchases auto loans from franchised and independent automobile dealerships secured by late-model used vehicles and, to a lesser extent, new vehicles. The company maintains dealer relationships in 48 states across the U.S.

Key facts and observations

• CPS' auto loan portfolio totaled approximately $2.3 billion as of Dec. 31, 2018, a 2.00% increase compared to the prior year. The company, which is publicly owned, reported pre-tax income of $18.7 million in 2018 compared to $32.1 million in 2017. After special tax items, after-tax net income increased to $14.9 million in 2018 compared to $3.8 million in 2017 (included write-down of the company's deferred tax asset due to lowered tax rates enacted by the December 2017 tax act).
• Most of the company's 2014 through 2017 transactions are experiencing higher losses than our original expected CNL levels; however, they are currently performing within a relatively narrow loss band of 17.75%-19.50%.
• While some of CPS' more recent transactions (2016-D and later) are experiencing lower CNLs than prior deals, these more recent deals are paying down slightly more slowly than CPS' prior deals. Further, CPS' loss curve remains more back-loaded than its subprime peers, and its loss curve remains rather steep at the back end. As a result, we're more comfortable revising projected losses after its pools have aged close to 24 months.
• Cumulative recoveries average 38.0% on its 2016 pools through month 29, which is similar to the 2015 transactions. The cumulative recoveries on the 2017 pools average 37.0% through month 17, higher than 35.0% for the 2016. Higher recoveries on the 2017 pools could be attributable to lower LTVs.
• The weighted average LTV ratio declined to a low of 111.5% (post-prefunding) for series 2017-D and 2018-A from a peak of 115.6% for 2016-D, although it increased to 114.7% for 2019-A.
• Other notable changes in CPS' pools include the weighted average original maturity of its 2017-C and subsequent transactions lengthening to approximately 69 months from 63 months for 2014-A. Additionally, the percentage of loans with no FICO has decreased over time; 3.7% in 2019-A from 10.2% in 2014-A.
• In January 2019, we raised our ratings on 10 classes and affirmed five classes across three transactions (see "10 Ratings Raised And Five Ratings Affirmed On Three CPS Auto Receivables Trust Transactions," published Jan. 22, 2019). Also, in May 2018, we raised our ratings on 25 classes and affirmed 27 ratings across 12 transactions (see "25 Ratings Raised, 27 Affirmed On 12 CPS Auto Receivables Trust Transactions," published May 21, 2018.

Performance

Table 12

Table 13

CREDIT ACCEPTANCE AUTO LOAN TRUST

Credit analysts:  

Timothy J Moran, CFA, FRM, (212) 438-2440, timothy.moran@spglobal.com

Joanne K Desimone, Dallas (1) 212-438-2444.

Issuer profile

Credit Acceptance Corp. (Credit Acceptance; 'BB/Stable/--'), a publicly owned company, was founded in 1972 and is headquartered in Southfield, Mich. Its combined loan portfolio (dealer advances and purchase loans) increased approximately 25.0% to $5.8 billion as of year-end 2018. For 2018, it reported net income of approximately $574.0 million.

Key facts and observations

• Credit Acceptance has a unique subprime auto finance model. Approximately 70% of its originations currently come from its Portfolio program. Under this program, Credit Acceptance makes loans directly to dealers (dealer advances) that are secured by retail installment sales contracts (RISC). These dealer advances are securitized, and unlike traditional subprime auto ABS, these advances are at a significant discount relative to the face amount of the RISCs. The company services those contracts and transfers its secured rights in, and the cash flows from, the contracts to the securitization trust. The RISC cash flows are used to repay the dealer advances and the ABS notes. The remaining 30% of its originations are purchased loans from dealers, and these are bought at a high discount relative to the face amount of the contract.
• Credit Acceptance forecasts a collection rate for each retail installment sales contract as a basis for its advance rate.
• Over the past 10 years, the advance rate on its Portfolio program has ranged between 42.0%-47.0% of the initial balance of the retail installment contract (principal plus interest) and 45.0%-52.0% for the Purchase Loan program. Since Credit Acceptance's forecast collection rate on the retail installment contracts (principal and interest) is much higher (63.0% to 81.0%), there is an embedded cushion against losses being higher than expected. Historically, actual collections on CAC's securitized pools have exceeded the forecast.
• The graph below illustrates CAC's CNLs on its ABS from the time the pools go into amortization (following a two-year revolving period) until the rated notes are repaid in full relative to the RISC at the beginning of the amortization period and any RISC added during amortization. On this basis, CNLs on the series 2012-2 through 2015-2 paid-off deals were 5.6%-9.4%. The company's 2016-1 transaction was unrated.
• Credit Acceptance also has nine outstanding transactions. Series 2016-2, 2016-3, and 2017-1 (two months) are in their amortization periods. Series 2017-2, 2017-3, 2018-1, 2018-2, 2018-3, and 2019-1 are in their revolving periods.

Performance

DT AUTO OWNER TRUST

Credit analysts:  

Timothy J Moran, CFA, FRM, (212) 438-2440, timothy.moran@spglobal.com

Sanjay Narine, (416) 507-2548, sanjay.narine@spglobal.com

Issuer profile

DriveTime Automotive Group Inc. (DTAG) was founded in 1992 in Phoenix. The company is privately owned by its founder and management. As of Dec 31, 2018, the company operated 145 dealerships and 26 reconditioning facilities located in 68 designated marketing areas in 27 states across the U.S. DTAG's affiliate, DriveTime Car Sales Co. LLC (DTCS), provides direct financing to consumers with subprime credit who purchase used vehicles that are sold at these retail dealer lots. Bridgecrest Acceptance Corp. ('B-/Stable/-'; formerly DT Acceptance Corp.) purchases the receivables that DTCS originates, and sells them into the DT Auto Owner Trust asset-backed transactions. Bridgecrest maintains two major collection centers (Dallas and Mesa, Ariz). Bridgecrest also serves as the servicer for loans originated by Carvana Group LLC ('CCC+/Stable/--'), which is partially owned by the company's founder.

The financed vehicles in the securitized pools are typically six years old with approximately 75,000-85,000 miles. DTAG offers a standard warranty of 36 months/36,000 miles or five years/50,000 miles depending on the state, which is sold separately from the vehicle.

More recently, the company has entered into the nonprime space with a focus on obligors with higher FICO scores and income for the sale of newer vehicles with lower mileage. This is part of a forward flow financing arrangement, which is part of a broader strategy to diversify financing options.

Key facts and observations

• The company's auto loan portfolio decreased approximately 4% year-over-year to approximately $4.7 billion as of Dec 31, 2018. The company reported net income of $216 million in 2018 after reporting a loss of $17 million in 2017. 2018's net income included a $184 million gain from selling shares in Carvana Group LLC.
• Most of the outstanding 2015 through 2017 issuances appear to be trending toward a 27.25%-30.50% CNL, which is generally in line, and in some cases, slightly lower, than our original projections.
• While still early, the 2018 issuances are exhibiting slightly lower CNLs as compared with 2017 transactions at the same point. We expect this to continue based on the improving mix of collateral in its pools (as reflected by a lower percentage of loans in its bottom five credit grades), and we reflected this in our lower expected net loss range on the 2018 transactions.
• Cumulative recoveries through month 16 for its 2017 issuances average 40.4%, which is in line with 2016 and 2015 recoveries at the same point.
• In March 2019, we raised our ratings on nine classes and affirmed on two classes from five transactions (see "Nine Ratings Raised And Two Affirmed On Five DT Auto Owner Trust Transactions," published March 7, 2019).

Performance

Table 14

Table 15

EXETER AUTOMOBILE RECEIVABLES TRUST

Credit analysts:  

Jenna Cilento, New York (1) 212-438-1533; jenna.cilento@spglobal.com

Rahel Avigdor, New York (1) 212-438-4067; rahel.avigdor@spglobal.com

Issuer profile

Exeter Finance Corp. (Exeter), headquartered in Irving, Texas, was originally founded in 2006 and was recapitalized in 2011 when The Blackstone Group L.P. (Blackstone) bought the company. As of Dec. 31, 2018, Blackstone, Navigation Capital Partners/Goldman Sachs & Co., and Exeter management own approximately 91.20%, 8.30%, and 0.50% of the company, respectively. From 2011 to 2014, the company used a branch origination model whereby it had offices in 46 different markets. In mid-2014, it started to close these offices, and by mid-2015, it had centralized all originations and fundings into two centers in Irving and Clearfield, Utah. Exeter originates auto loans indirectly through franchised and independent dealerships. Contracts originated through the CarMax relationship represent approximately 23% of its current business, which is up from 20% in 2017.

Key facts and observations

• The company's auto loan portfolio grew by approximately 25% year-over-year to approximately $4.26 billion as of Dec. 31, 2018. After several years of net losses, the company reported profits of $29.5 million, $45.30 million, and $82.6 million, for 2016, 2017, and 2018, respectively.
• All of Exeter's outstanding transactions from 2014-3 through 2016-3 are experiencing higher losses than our original expectations.
• Projected CNL on Exeter's series 2014-3 through 2015-3 are in the range 19.25%-23.00%. Management attributes the high losses on the 2015-2 and 2015-3 transactions (revised ECNLs of up to 23%) to issues that arose from its branch consolidation in 2015 and the resulting staff cuts. These actions contributed to higher full-balance charge-offs (often refered to as skips).
• CNLs for the series 2016-3 and subsequent series (with the exception of 2018-3) are trending slightly lower than the series 2015-2 through 2016-2 issuances, even though they have lower recovery rates.
• Cumulative recovery rates average 38% for the 2016 pools through month 29 compared to 41% at the same number of months outstanding for the 2015 pools. The 2017 pools' cumulative recovery rates average 41% through month 18.
• For transactions issued from series 2016-3 through 2018-2, the weighted average LTV ranged between 110.0%-111.9% (down from 113.3% for 2015-1); however, for 2018-3 and subsequent deals the range increased slightly to 112.0%-113.6%. The percentage of loans with original terms of 61-72 months has declined to a range of 81.9%-84.9% on its series 2016-2 and subsequent pools, down from 88.9%-90.1% for its 2015 issuances. At the same time, the percentage of new vehicles financed has fallen from 27.0% on two 2018 pools to 17.5% on series 2019-1, which in our view is due to its used financing business with CarMax growing. The weighted average APRs have increased to a range of 20.8%-21.9% for the 2017 and later pools compared to 18.8%-19.9% for 2015 pools.
• The outstanding transactions include triggers whereby if losses exceed a scheduled level, the overcollateralization target increases. This effectively stops releases. The series 2015-2 and 2015-3 transactions had breached their triggers but have since cured.
• In May 2018, we raised our ratings on 30 classes and affirmed seven ratings on 12 transactions (see "Thirty Ratings Raised And Seven Ratings Affirmed On 12 Exeter Automobile Receivables Trust Deals," published May. 7, 2018.

Performance

Table 16

Table 17

FIRST INVESTORS AUTO OWNER TRUST

Credit analysts:  

Sanjay Narine, CFA, New York (1) 416-507-2548; sanjay.narine@spglobal.com

Ethan Choi, New York (1) 212-438-1043; ethan.choi@spglobal.com

Issuer profile

First Investors Financial Services Inc. (First Investors), headquartered in Houston, was founded in 1989 by its current president and CEO, and in 2012, Aquiline Capital Partners LLC, a private equity firm, acquired the company. The company originates auto loans sourced by automobile dealers (indirect auto loans) and makes auto loans directly to consumers to refinance existing automobile loans (direct auto loans). The company specializes in lending to consumers with impaired credit profiles, a high percentage of whom have previously filed for bankruptcy. It is in partnership with Lending Club to facilitate the purchase of direct refinance auto loans.

Key facts and observations

• The company's managed portfolio increased 7.5% to $1.15 billion as of Jan. 31, 2019, compared to $1.07 billion a year earlier. The company continued to be profitable through its fiscal year ended April 30, 2018.
• We have revised upwards our ECNLs for the company's outstanding series 2014-3 through series 2017-1 transactions to a range of 10.50%-12.75%, from initial expectations of 7.50% to 10.25%.
• The series 2016-2 and 2017-1 transactions had a low percentage of direct loans (19.00% and 22.00%, respectively), which tend to have lower losses than the indirect loans. In our view, this, coupled with lower recovery rates, is causing losses to trend the highest on the 2016-2 and 2017-1 pools (12.00%-12.75%).
• We lowered our loss proxy on the series 2019-1 to 9.75%-10.25% due to an increase in direct loans to 64.65% of the pool from 45.88% for series 2018-2. The 2019-1 pool's higher weighted average LTV of 131.06% compared to 122.39%-127.41% for prior pools is reflective of the higher percentage of direct loans in the pool, most of which are refinancings, which do not benefit from down payments.
• Cumulative recovery rates on its 2017 transactions through month 16, average approximately 37% compared to 36% for the 2016 transactions and 42% for the 2015 transactions for the same number of months.
• In September 2018, we upgraded 11 classes and affirmed seven ratings on five transactions (see "Ratings From Five First Investors Auto Owner Trust Deals Raised On 11 Classes, Affirmed On Seven," published Sept. 28, 2018).

Performance

Table 18

Table 19

FLAGSHIP CREDIT AUTO TRUST

Credit analysts:  

Timothy J Moran, CFA, FRM, New York (1) 212-438-2440; timothy.moran@spglobal.com

Peter W Chang, CFA, New York (1) 212-438-1505; peter.chang@spglobal.com

Issuer profile

Flagship Credit Corp. (Flagship) was founded in 2005 by its current chairman and CEO, Michael Ritter. During the credit crisis, it greatly curtailed originations and generally sold these loans to third parties. Investment funds affiliated with Perella Weinberg Partners acquired the company in 2010. In January 2015, the company merged with CarFinance Capital LLC. The merged company provides financing to mid-tier buyers of new and used vehicles, primarily at franchised dealerships. Beginning with the 2015 vintages, securitizations for the first time included CarFinance direct-originated loans.

Flagship originates indirect automobile loan contracts in 48 states through approximately 10,700 dealerships, of which approximately 86% are franchised. In addition, the company originates direct loans through CarFinance.com.

Key facts and observations

• The company's managed portfolio contracted approximately 2% year-over-year to $2.82 billion as of Dec. 31, 2018. Because of higher loan loss provisions, it reported net losses in 2015, 2016, and 2017; however, based on unaudited financials for Sept 30, 2018, it posted net income of $3.2 million.
• CNLs on Flagship's securitizations appear to have peaked with the 2016-3 and 2016-4 issuances, which we expect to lose 13.50% to 14.00%. Our revised expected loss level for its 2017-1 through 2018-1 transactions is lower at 12.25% to 13.25%.
• To address weakening performance, the company reduced lending to no FICO borrowers (0% for its 2017-3 through 2019-1 deals compared with 10.50% for 2014-2) and thin file obligors (0.97% in 2019-1, down from 4.80% in 2017-1 and 15.00% in 2015-1). It also eliminated military lending (0% since 2017-1 compared with a high of 15.6% in 2014-1), and increased its direct loan originations to 17.5% for 2019-1 compared to 12.9% in 2016-4. Historical data from the first quarter of 2016 and onwards indicates that its direct loans are performing better than its indirect loans.
• The cumulative recovery rate on its 2017 pools average approximately 44% through month 15, compared with slightly lower levels of 41% for the 2016 vintages at the same point.
• Beginning with 2018-4, Flagship's cleanup call percentage is 5%, which is lower than most other auto securitizers that typically have a clean-up call of 10% to 15%.
• For CarFinance-originated pools, we have revised our loss estimates upward to 15.00%-15.50% for series 2015-1, its last stand-alone transaction, and up to 14.25% for series 2014-2, which still hasn't been cleaned up despite a pool factor of 9.28%.
• In March 2019, we raised our ratings on 14 classes and affirmed our ratings on six classes from four Flagship Credit Auto Trust transactions and two CarFinance Capital Auto Trust transactions (see "Various Rating Actions Taken On Four Flagship Credit Auto Trust Deals And Two CarFinance Capital Auto Trust Deals," published March 8, 2019).

Performance

Table 20

Table 21

Table 22

Table 23

FOURSIGHT CAPITAL AUTOMOBILE RECEIVABLES TRUST

Credit analysts:  

Peter W Chang, (212) 438-1505, peter.chang@spglobal.com

Amy S. Martin, New York (1) 212-438-2538; amy.martin@spglobal.com

Issuer profile

Foursight Capital (Foursight) was founded in Salt Lake City in October 2012 by the former management of Franklin Capital Corp. and is owned by Jeffries Financial Group ('BBB-/Stable/-'; formerly known as Leucadia National Corp.). Franklin Capital Corp. issued over 15 securitizations during 1998-2008, most of which were rated by S&P Global Ratings. Franklin Capital Corp. stopped originations in 2008 and proceeded with the run-off of its portfolio through 2012 when it ceased operations and contributed its systems and technology to Foursight. Foursight primarily focuses on working with franchise and mid-market dealerships that have a strong sales presence with near-prime customers. Of the six ABS transactions that the company has completed, we have rated only the 2016-1 transaction.

Key facts and observations

• CNLs for series 2016-1 are 7.15% through month 33. In July 2018 we revised upwards our ECNL to 9.00%-10.00% from an original range of 7.50%-8.00%. The cumulative recovery rate is approximately 46%.
• Even with the weaker than expected performance, credit enhancement had grown sufficiently to support higher ratings. In July 2018, we raised our ratings on classes A-2 and B to 'AA (sf)' and 'AA- (sf)', respectively, from 'A (sf)' and 'A- (sf)', respectively (see "Two Ratings Raised On Foursight Capital," published July 16, 2018).
• We maintain a 'AA' rating cap on Foursight's auto loan ABS transactions for a number of reasons, including its limited operating history.

Performance

Table 24

Table 25

GLOBAL LENDING SERVICES LLC

Credit analysts:  

Steve D Martinez, (212) 438-2881, steve.martinez@spglobal.com

Global Lending Services LLC (GLS) is a relatively new subprime auto finance company that was founded by Doug Duncan, who had previously founded and led Safe-Guard Products International LLC for 20 years. GLS, which is 80.0% owned by BlueMountain Capital Management LLC, started operations in Greenville, S.C., in August 2012 after acquiring Resurgent Auto Finance.

Key facts and observations

• The company's outstanding portfolio grew 83% year-over-year to $1.5 billion as of Dec 31, 2018. It reported net income of approximately $20.0 million and $4.5 million for 2018 and 2017, respectively, compared to a loss of $6.8 million in 2016. The company's improved profitability has been in large part due to its whole-loan sales arrangements, which have allowed it to book gains at the time of these sales. If GLS' access to these funding channels is terminated, its operating income could be negatively affected.
• The company has six S&P Global Ratings-rated outstanding securitizations, including its latest one, series 2019-2. The oldest two, series 2017-1 and 2018-1, with 22 and 16 months of performance, respectively, appear to be performing slightly better than our original expectations. As a result, in April we revised downwards our ECNLs on these two deals to a range of 19.25% to 20.25% from 21.00%-22.00%. In addition, the company's 2017 origination static pool CNL performance has improved compared to the 2016 vintage. The improvement, in our view, is due to the tighter underwriting the company implemented in late 2016.
• Due to the above factors and peer analysis, we lowered our loss expectation at the time of issuance for series 2018-2 and subsequent pools to a range of 19.25%-20.50%, from 21.00%- 22.00% for its first two transactions. The reduction in losses was tempered by our concerns about the company's rapid expansion and its ambitious growth plans for this year, which, if achieved would increase the managed portfolio to $2.5 billion by year end.
• Unlike most other securitizations, GLS' transactions include a representation that all the contracts in its pool have made at least one payment.
• Its transactions have a slightly higher LTV than some of its peers (approximately 118%) because, according to the company, a larger percentage of the obligors purchase an extended warranty or other ancillary products. These products, which often help to reduce losses by providing coverage for repairs or vehicle damage, are enticing for dealers because they allow them to earn additional profits on the sale of the vehicle. In addition, the weighted average APR on GLS' pools of approximately 18% is slightly lower than that of many of its competitors.
• Cumulative recoveries on its transactions are running at 40.5%, 41.8%, 38.2%, and 32.2% for series 2017-1, 2018-1, 2018-2, and 2018-3, respectively, at months 21, 14, nine, and five. Recoveries tend to increase over time, and based on past performance, we expect the latter two to cross the 40.0% threshold around month 12.
• From series 2017-1 through 2019-1, the seasoning on the pools has declined to three months from six months. In addition, there has been a decrease in the concentration of the no FICO loans to 6.3% for series 2019-1 from 7.7% for series 2017-1. The overall concentration in the long-term loans of 61-72 months remains in the range 82.0%-86.0%.

Performance

Table 26

Table 27

HONOR AUTOMOBILE TRUST SECURITIZATION

Credit analysts:  

Amy S. Martin, New York (1) 212-438-2538; amy.martin@spglobal.com

Rahel Avigdor, New York (1) 212-438-4067; rahel.avigdor@spglobal.com

Issuer profile

Honor Finance (Honor), which was started in 2001, completed one securitization in 2016 and terminated its business in 2018. According to its warehouse lender, a significant increase in credit losses during 2017 caused the company to report negative equity as of Dec. 31, 2017. Between December 2017 through the March 2018, Honor saw top management changes. The company's owner, CIVC, a private equity firm based in Chicago, decided to wind-down the business rather than support it with additional capital. Unable to renew or obtain warehouse funding, Honor wound down its operations beginning in the summer of 2018. On Sept. 1, 2018, Westlake assumed the servicing for not only the Honor Automobile Trust Securitization (HATS) series 2016-1 pool of receivables but also the receivables pledged under the warehouse lender's credit facility. As of the last reporting date before the 2016 securitization, Honor had 181 employees, a dealer base of 2,657 dealers, and had a portfolio size of approximately $213 million.

Key facts and observations

• The 2016-1 pool started off performing satisfactorily as overcollateralization reached its target of 20.5% of outstanding receivables as of May 31, 2017. However, extensions rose dramatically and reached a peak of 20%-22% per month from October 2017 through January 2018. The high level of extensions, which we believe was outside of industry norms, caused losses to be more back-loaded than normally observed in most subprime transactions, as evidenced by the initial concave nature of series 2016-1's CNLs.
• Overcollateralization started to fall below its required level in December 2017 and and has been completely eliminated since October 2018. As of April 15, 2019, it stands at negative 25.39% of the current outstanding receivable balance.
• Despite an improved monthly recovery rate of 37.60% in January 2019, the cumulative recovery rate is currently about 16.4%, which is down substantially from approximately 25.0% at month 12.
• The performance of HATS' pool has been significantly worse than initially expected. We originally expected the pool to incur CNLs of 21.00%. Based on January 2019's monthly servicing report (the last monthly servicing report before our press release, "Honor Automobile Trust Securitization 2016-1 Class B Notes Downgraded," published Feb. 15, 2019) and assuming a remaining loss to liquidation rate of between 35.00% and 44.00%, the pool could experience 35.00%-37.00% in CNLs.
• In April, 2018 we placed class C, originally rated 'BBB (sf)', on CreditWatch negative. We subsequently downgraded it to 'CCC+ (sf)' in July 2018 and further downgraded it to 'CC (sf)' in November 2018. The class A notes were repaid in full in December 2018. Our latest rating action was in February 2019, at which time, we downgraded the class B notes to 'B- (sf)' from their original 'BBB (sf)' rating. (See "Honor Automobile Trust Securitization 2016-1 Class C Rating Placed On Watch Negative," published April 18, 2018; "Honor Automobile Trust Securitization 2016-1 Class C Rating Lowered To 'CCC+', Class A And B Ratings Affirmed," published July 17, 2018; "Honor Automobile Trust Securitization 2016-1 Class B Notes Placed On Watch Negative, Class C Downgraded," published Nov. 19, 2018; and "Honor Automobile Trust Securitization 2016-1 Class B Notes Downgraded," published Feb. 15, 2019.)

Performance

Table 28

Table 29

PRESTIGE AUTO RECEIVABLES TRUST

Credit analysts:  

Linda Yeh, New York (1) 212-438-2520; linda.yeh@spglobal.com

Timothy J Moran, CFA, FRM, (212) 438-2440, timothy.moran@spglobal.com

Issuer profile

Prestige Financial Services Inc. (Prestige), headquartered in Salt Lake City, was founded in 1994 and is part of the privately held Larry H. Miller Group of Cos. (Miller Group). Prestige provides financing to franchised automobile dealerships by acquiring auto loans from both the Miller Group (approximately 7%) and non-Miller Group dealerships. Prestige's target market consists of credit-impaired buyers, many of whom have had a previous bankruptcy. Loans to individuals with a recent bankruptcy constitute between 38% and 51% of its outstanding pools.

Key facts and observations

• The company's managed portfolio increased by 2.5% year-over-year to $1.11 billion as of Dec. 31, 2018.
• Prestige's 2015-1 through 2017-1 transactions are experiencing higher losses than we had originally expected with the 2016-1 and 2016-2 transactions having the widest variances. We attribute the higher losses to not only increased competition and credit normalization but also to the company's post-recession strategy of growth by expanding its territory and dealership base.
• In October 2018, we increased our expected CNL level on the 2015-1 and 2016-1 issuances to 14.00%-14.50% and 16.90%-17.40% respectively, from an original expectation of 11.25%-11.75% and 12.25%-12.75%, respectively. Despite the negative variance from expectations, the notes had delevered significantly and upgrades were warranted. Even the class E notes from series 2016-1, which we had originally rated 'BB (sf)', was upgraded to 'BB+ (sf)'(see "Six Ratings Raised, Two Affirmed On Two Prestige Auto Receivables Trust Transactions," published Oct. 31, 2018.
• In March 2019, we increased our expected CNL levels on Prestige's 2016-2 and 2017-1 transactions to a range of 16.70%-17.20% and 13.75%-14.25%, respectively. Our original ECNL for both of these transactions was 13.00%-13.75%. Again, despite the weaker-than-expected performance, the transactions had deleveraged considerably, and upgrades were warranted. We raised the ratings on six classes and affirmed the ratings on five classes across the two transactions, series 2016-2, and 2017-1 (see "Six Ratings Raised And Five Ratings Affirmed On Prestige Auto Receivables Trust 2016-2 And 2017-1," published March 22, 2019).
• The company tightened its lending standards in 2016 through the third-quarter 2017, and in the first-quarter 2018, it implemented the latest version of its internal scorecard, which was built in consultation with an external risk-modeling firm. While early, loss performance seems to be improving for the third- and fourth-quarter 2017, particularly within its bankruptcy channel of originations.
• The cumulative recovery rate on its series 2015-1 through 2016-2 transactions is approximately 29%-32%. The series 2017-1's recovery rate of 27% at month 19 is in line with prior deals at the same point; however, series 2018-1's recovery rate of approximately 15% is slightly lower than prior deals at the same time (month six).

Performance

Table 30

Table 31

SANTANDER CONSUMER USA INC.

Credit analysts:  

Jenna Cilento, (212) 438-1533, jenna.cilento@spglobal.com

Rahel Avigdor, New York (1) 212-438-4067; rahel.avigdor@spglobal.com

Issuer profile

Santander Consumer USA Inc. (SC), headquartered in Dallas, was founded in 1997 as Drive Financial Services and was acquired by Banco Santander S.A. in 2006. It became part of Santander Holdings USA Inc. (SHUSA; 'BBB+/Stable/A-2') in 2009 and went public in January 2014. SHUSA currently owns approximately 68.0% of common stock of SC. SC's auto business has grown significantly through acquisitions and portfolio purchases completed from 2008-2010, as well as the May 1, 2013, agreement with Chrysler Group LLC to form Chrysler Capital, the automaker's preferred lender. In 2018, SC achieved an average annual Fiat Chrysler penetration rate of approximately 30%, up from 21% in 2017 (inclusive of dealer floorplan financing).

SC's managed auto loan portfolio, which includes the receivables it securitizes under its Santander Drive Auto Receivables Trust (SDART) shelf and its deep subprime shelf, DRIVE Auto Receivables Trust (DRIVE), increased approximately 8.3% to $26 billion as of Dec. 31, 2018. In contrast, in 2017 SC's managed portfolio had contracted 5.0% as it reduced originations to vehicle buyers with FICOs less than 640 in a deliberate move to improve controls and scoring models. In its 2018 full-year earnings presentation, it noted that originations grew 43.0% in 2018 to $28.8 billion. Segments reporting the most growth were Chrysler Capital loans with a FICO of less than 640 (70% increase year-over-year) and leases (63% increase year-over-year). As of Dec. 31, 2018, SC had $44.0 billion in assets, $40.0 billion in finance receivables and leases, and $7.0 billion in shareholder equity. The company reported that it earned a net income of $916.0 million in 2018.

Santander Drive Auto Receivables Trust (SDART)

Key facts and observations

• SC's S&P Global Ratings-rated SDART 2015-1 through 2015-5 transactions are performing significantly better than we originally expected. Our current ECNL range on these SDART pools is approximately 12.25%-13.75%.
• We did not rate the 2016 SDART transactions, but based on current performance they appear to be trending slightly worse than the series 2015 pools.
• The series 2017 pools are tracking slightly better than our original ECNL range of 15.50%-16.50%. In September 2018, we revised our ECNLs for them to 15.00%-16.00%.
• SDART's pool characteristics have generally improved, except for a growing concentration of 73-75 month loans. The weighted average LTV ranged from 110%-114% for its series 2013-4 through 2015-2 pools, but since the series 2015-5 transaction, LTVs have been lower, and series 2019-1 had a weighted average LTV of approximately 107%. Also, the weighted average FICO has increased to a range of 609-623 for its series 2018 through 2019-1 pools, from 608-614 for its series 2017 pools and from approximately 595-600 for its series 2016 and 2015 pools.
• The percentage of loans with original terms of 73-75 months increased to a range of 15.00%-20.00% in series 2018 through 2019-1, up from 8.00%-12.00% in series 2017 and a low of 2.31% for series 2014-1.
• Cumulative recovery rates are approximately 40% on the series 2017 pools through month 18, which is lower than the 45% rate for the prior vintages at the same point. Prior to January 2016, SC's securitizations did not include all repossession expenses. The inclusion of these costs is likely contributing to lower recoveries.
• Beginning in 2017, SC added a representation to its securitization documents that all loans it securitizes either have made or will have made their first two payments. If the loans do not make their first two payments, the company will buy back these receivables. SC had already voluntarily employed this practice, but it decided to codify it in 2017.
• In November 2018, we raised our ratings on 21 classes and affirmed eight ratings from eight pools securitized from 2014 through 2017.

Performance

Table 32

Table 33

DRIVE

These transactions, like the above SDART deals, were issued by SC. The DRIVE pools reflect a weaker credit mix than the SDART pools.

Key facts and observations

• Performance has improved since the 2016-A transaction, with the subsequent transactions experiencing CNLs in line with to slightly lower than CNLs for the 2015 pools. The 2017 securitizations have experienced CNLs of 8.93% through month 17, which is lower than 2016 (10.54%) and 2015 (10.57%) securitizations at the same point.
• The 2017 transactions are experiencing higher average recoveries (37.8%) than the 2016 transactions (35.5%) through month 17, although they remain lower than 2015 transactions at the same point in time (41.4%). Beginning in 2016, the company started to net out repossession expenses from liquidation proceeds. This has negatively affected its 2016 recovery rates.
• We believe the improved performance since DRIVE 2016-A is the result of the better credit quality of DRIVE's securitizations, including lower LTVs, as well as an expanded dealer review process.
• The weighted average LTV has declined to approximately 110% for its last two pools, 2019-2 and 2019-1, from a high of 114% for the 2015-A pool.
• For the 2018 and 2019 securitizations, 73-75 month loans made up between 8.30% and 15.50% of these pools. The weighted average LTV for only these loans has been between 96% and 100%, which is considerably lower than the weighted average LTVs for the overall pools of approximately 106% to 108%. Further, the LTVs on these longer-term loans have declined from a 102%-106% range for the 2015-A through 2016-C transactions (see "Presale: Drive Auto Receivables Trust 2019-2," published March 6, 2019).
• We currently maintain ratings on 19 DRIVE transactions issued from 2015 through first-quarter 2019. In March 2019, we reviewed our loss expectations for the series 2015 and 2016 vintages and revised or maintained them. In this review, we also raised ratings on nine classes from these series (see "Nine Ratings Raised, Four Ratings Affirmed On Seven Drive Auto Receivables Trust Transactions," published April 9, 2019). In December 2018, we raised four ratings on the 2017-3 transaction (see "Four Ratings Raised On Drive Auto Receivables Trust 2017-3," published Dec. 10, 2018). In October 2018, we also raised 14 ratings across four 2017 DRIVE transactions (see "Fourteen Ratings Raised On Four Drive Auto Receivables Trust Transactions," published Oct. 31, 2018).

Performance

Table 34

Table 35

SIERRA AUTO RECEIVABLES SECURITIZATION TRUST

Credit analysts:  

Steve D Martinez, (212) 438-2881, steve.martinez@spglobal.com

Issuer profile

Sierra Auto Finance LLC (Sierra), headquartered in Dallas, was founded in mid-2012 as a subprime auto finance company making indirect auto loans. It is 68% owned by a private equity fund affiliated with Emerald Development Managers L.P. In 2018, Sierra ceased originations at the same time its warehouse facility with Wells Fargo Bank N.A. went into amortization. Sierra continues to be the named servicer; however, early this year Sierra shifted servicing activity through a sub-servicing arrangement to First Investors.

Sierra has only one ABS transaction outstanding, series 2016-1. With 34 months of performance, it has experienced CNL of 20.11% and a cumulative recovery rate of 23.15%. Effective April 15, 2019, the overcollateralization fell to 19.21%, which is below the target of 20.00%. We currently expect the pool to experience CNLs of between 24.00% and 25.00%.

The series 2016-1 transaction has a class B and C note outstanding. The class B rating of 'BBB (sf)' was affirmed on Dec. 20, 2018. The class C rating of 'BB (sf)' was placed on CreditWatch with negative implications on Dec. 20, 2018. We extended our negative CreditWatch placement on the class C rating on March 18, 2019. We aim to resolve the negative CreditWatch placement around June 18, 2019.

Table 36

Table 37

TIDEWATER AUTO RECEIVABLES TRUST

Credit analysts: 

Timothy J Moran, CFA, FRM, (212) 438-2440, timothy.moran@spglobal.com

Issuer profile

Tidewater Finance Co. (Tidewater), headquartered in Virginia Beach, Va., was founded in 1992 by the Sandler Family, which holds 90% of the company. Nathan Benson, the CEO, owns the remaining 10%. The company targets consumers who have recently entered or have been discharged from Chapter 7 bankruptcy. Tidewater has two main business lines, Tidewater Motor Credit and Tidewater Credit Services. Tidewater Motor Credit (TMC) originates auto loans to finance auto purchases from franchised and independent automobile dealers. Tidewater Credit Services originates installment and revolving contracts relating to purchases of items, such as furniture, floor covering, and other home improvements.

Key facts and observations

• Tidewater was profitable through the past two recessions and up through 2017. For 2018, per management, the company is expected to incur net losses due to an increase in loan loss allowances as of yearend for the Tidewater Credit Services' portfolio. There were no increases in the allowances for the auto loan portfolio.
• TMC's managed portfolio remained stable year-over-year at approximately $217 million as of March 31, 2019, compared to $214 million as of March 31, 2018.
• The company has issued five securitizations rated by S&P Global Ratings, three of which have been paid down in full. The 2010-A transaction experienced CNLs of 5.85%, the 2012-A transaction experienced CNLs of 8.97%, and the 2014-A transaction experienced CNLs of 11.41%. In January 2019, we reviewed the 2016-A transaction. We maintained our original expected CNL range of 13.00%-13.50% for this transaction, and raised our ratings on classes C, D, and E to 'AAA (sf)', 'AA- (sf)', and 'BB+ (sf)', respectively.(See "Three Ratings Raised On Tidewater Auto Receivables Trust 2016-A," published Jan. 9, 2019.)
• Cumulative recoveries on the 2018 transaction are approximately 45% through month 11, up from approximately 32% on the 2016 pool at the same time.

Performance

Table 38

Table 39

UNITED AUTO CREDIT SECURITIZATION TRUST

Credit analysts:  

Rahel Avigdor, (212) 438-4067, rahel.avigdor@spglobal.com

Issuer profile

United Auto Credit Corp. (UACC), headquartered in Newport Beach, Calif., was founded in 1996, and in mid-2008, a new management team was brought in and began centralizing its former branch structure. The company ceased originating loans from August 2008 through June 2009 but continued to service them while centralizing its operations. In February 2011, the company's largest shareholder at the time--and one of its founders--took the company private. UACC's parent company is now owned by Pine Brook Road Partners, a fund managed by Guillermo Bron, and members of management.

The company provides retail auto financing to primarily independent, but some manufacturer-franchised, dealerships. UACC designed its lending programs primarily to serve consumers that have credit bureau scores ranging from 480 to 630. The vehicles financed are approximately seven to 10 years old, have an average mileage of approximately 113,000 miles, and are financed for approximately 10,200 over a 44-month term, on average. The average APR is approximately 23.00%.

Key facts and observations

• The company's serviced portfolio was approximately $480.9 million as of Dec. 31, 2018, which is a 21% increase year-over-year. UACC was profitable on a pre-tax basis for fiscal years 2011-2014. Although the company incurred pre-tax losses for the years 2015 and 2016, the company showed a profit for the fiscal years ended 2017 and 2018.
• Since 2015, the company has been tightening its underwriting standards and has reduced its weighted average LTVs from a high of 120% for 2015-1 to 112%-113% for the 2018 transactions, and has increased the weighted average FICO from 554 for 2015-1 to 580 for the 2018 deals. We have observed improved performance on UACC's transactions following the 2015-1 transaction, which paid off with CNLs of 22.65%. The 2016-1 and 2016-2 transactions paid-off with CNLs of 19.19% and 19.30% respectively.
• In March 2019, we revised our ECNL range on the 2018-1 transaction down to 20.00%-21.00% from an initial range of 20.50%-21.50%. Previously in August 2018, we had lowered our ECNL for 2017-1 to 19.00%-20.00% from an intial level of 21.00%-22.00%. Our initial ECNL for series 2018-2 is 19.50%-20.50%.
• Cumulative recoveries have generally been decreasing; at month 13, cumulative recoveries for series 2018-1 are approximately 22%, compared to 23% for 2017 through month 21 and 27% for the 2016 pools.
• In March 2019, we raised five ratings on the 2018-1 transaction (see "Ratings Raised On Five Classes From United Auto Credit Securitization Trust 2018-1," published March 21, 2019). We also raised four ratings on the 2017-1 transaction in August 2018 (see "Four Ratings Raised On United Auto Credit Securitization Trust 2017-1," published Aug 20, 2018).

Performance

Table 40

Table 41

WESTLAKE AUTOMOBILE RECEIVABLES TRUST

Credit analysts:  

Jenna Cilento, New York (1) 212-438-1533; jenna.cilento@spglobal.com

Rahel Avigdor, (212) 438-4067, rahel.avigdor@spglobal.com

Issuer profile

Westlake Services LLC (Westlake), headquartered in Los Angeles, was founded in 1978 by Don Hankey. He and his family own most of the company, and Marubeni Corp. (a Japanese conglomerate) owns 24.3%. Westlake provides retail financing to a network of more than 23,000 independent and franchised dealerships (CarMax, Enterprise Car Sales, and Hertz Car Sales are included in the franchise classification) across the 50 states. Receivables originated through its franchise channel accounted for approximately 39% of its latest pool, 2019-1. While it historically focused on subprime-type lending, it has expanded into full-spectrum indirect lending, direct lending, and portfolio acquisitions.

Key facts and observations

• The company's portfolio increased 38% year-over-year to approximately $5.5 billion as of Dec. 31, 2018. It reported pre-tax income of $402.0 million for 2018.
• In March 2019, we revised our ECNLs on the company's 2016-1, 2016-2, 2017-2, and 2018-1 transactions downward to up to 13.3%, up to 13.5%, 13.0%-13.5%, and 12.75%-13.25%, respectively. The cumulative recovery rates are averaging 33.2% through month 29 for the 2016 securitizations, slightly higher than 32.0% for 2015 and 2014 at the same point of time.
• The weighted average LTVs on its pools increased to a high of 113.79% for 2016-2, but have since steadily declined to 106.91% for 2017-2 (although they inched up to 110.94% for its last pool, 2019-1). The percentage of loans with an original term of 61-72 months has increased to 43.86% for 2019-1 compared to 21.62% for 2016-1.
• Westlake's loan maturities have remained on the shorter end relative to other subprime lenders, with a weighted average original term of approximately 55-59 months. However, the average original term has been lengthening as the company has started to finance newer used vehicles: its 2019-1 pool of loans was backed by vehicles having average mileage of approximately 76,000 miles, which was down from approximately 93,000 miles for 2014-2.
• In March 2019, we reviewed four outstanding transactions (2016-1, 2016-2, 2017-2, and 2018-1), which yielded upgrades on 12 classes and affirmations on six classes (see "Twelve Ratings Raised, Six Ratings Affirmed On Four Westlake Automobile Receivables Trust Transactions," published March 18, 2019).
• Effective Sept. 1, 2018, Westlake is servicing as the servicer on the Honor 2016-1 transaction.

Performance

Table 42

Table 43

Related Research

• U.S. Auto Loan ABS Tracker: February 2019, April 22, 2019
• The Severity Of Subprime Auto Loan Delinquencies Is In The Eye Of The Beholder, March 18, 2019
• U.S. Auto Loan ABS Tracker: January 2019, March 14 2019
• U.S. Auto Loan ABS Tracker: Full-Year And December 2018 Performance, Feb. 22, 2019
• 10-Year Retrospective: Changes In U.S. Auto ABS In The Decade Since The Great Recession, Feb. 15, 2019
• Is There Extension Tension In U.S. Subprime Auto Loan ABS? Nov. 29, 2018
• Using Pool Factors To Analyze U.S. Subprime Auto Loan ABS Credit Losses, Aug. 21, 2018