Subprime Auto Amy Martin Lead Analyst Senior Director Auto ... · Subprime Auto Loan ABS...

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Subprime Auto Loan ABS Update Annual Non-Prime Auto Financing

Conference

NAF Association

Copyright © 2018 by S&P Global.

All rights reserved.

Fort Worth, Texas

May 31, 2018

Amy Martin

Lead Analyst – Auto ABS

Senior Director

Structured Finance Ratings

Ines Beato

Director

Structured Finance Ratings


Agenda

2

• Size Of The Auto Loan And Subprime Auto Loan ABS Markets

• Subprime Auto Finance Trends

• Collateral Characteristics Of Subprime Auto Loan ABS

• Subprime Auto Loan ABS Collateral Performance (Vintage Analysis)

• Comparison of Issuers To S&P’s Subprime Auto Loan Static Index

• New Performance Metric

• Subprime Auto Loan ABS Ratings Performance

• Outlook


Auto ABS Issuance Generally Tracks Auto Sales

3

Source: S&P Global Ratings

4.4 4.5 3.2 2.3 3.4 1.7 4.7 6.8

14.3 13.3

5.1 8.5 8.3 9.7 10.7

14.0 15.9 17.5 14.3 13.5

37

54

70

88

100

87

74

103

89

74

54

45 47 49

67

61

69 68 67 73

0

2

4

6

8

10

12

14

16

18

0

20

40

60

80

100

120

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Au

to

Sa

les (

Mill

ion

Un

its)

$ B

illio

n

U.S. Auto Sales, Auto Lease ABS Issuance and Auto Loan ABS Issuance

Auto Lease ABS Issuance ($ Bil) Auto Loan ABS Issuance ($ Bil) Auto Sales (Million Units)


Subprime Dollar Issuance

4

% Of Total Retail Auto ABS

$21.6

$16.3

$2.2 $1.2

$8.7

$11.6

$18.4 $17.6

$20.0

$23.3 $23.1

$25.4

$11.2 $11.6

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

$0

$5

$10

$15

$20

$25

$30

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2017YTD

*Est.2018YTD

Billi

on

$

Issuance ($) % of Total Dollar Issuance

Source: S&P Global Ratings *YTD 2018 is estimated through May 31, 2018


Top 3 Subprime Issuers As a % of Subprime Auto Loan ABS

5


67.1%

72.1%

100.0%

90.6%

95.3%

89.7%

79.2%

73.7%

65.3% 66.8%

57.6% 60.5%

50.0%

55.0%

60.0%

65.0%

70.0%

75.0%

80.0%

85.0%

90.0%

95.0%

100.0%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

1 CapOne AMCAR AMCAR AMCAR Santander Santander Santander Santander Santander Santander Santander Santander

($7.2 bn) ($9.8 bn) ($6.7bn) ($8.8bn)

2 AMCAR Capital One

CPS DriveTime AMCAR GM Financial

GM Financial

GM Financial

GM Financial

GM Financial

GM Financial

GM Financial

($4.2 bn) ($4.4 bn) ($4.9 bn) ($4.7 bn)

3 HSBC Drive Santander

CAC Prestige DriveTime DriveTime CPS Exeter Exeter Exeter Flagship DriveTime

($1.7 bn) ($1.4 bn) ($1.6 bn) ($1.9 bn)


Subprime Auto Loan ABS 2017

6

48 Transactions, $25.42B

JD Byrider, 0.5%

UACC, 0.6%

Veros, 0.7% CIG

Financial, 0.7% GLS,

0.7% Prestige, 1.3%

First Investors, 2.4%

CPS, 3.4%

ACA, 3.4%

Flagship 3.87%

CAC, 4.5%

Exeter, 5.5%

Westlake, 5.9% OneMain, 6.1%

DriveTime, 7.4%

GM Financial 18.6%

Santander & Drive, 34.5%

UACC – United Acceptance Credit Corporation CAC – Credit Acceptance Corporation CPS – Consumer Portfolio Services ACA - American Credit Acceptance



S&P’s Take On Subprime Auto Finance Trends

7

• Credit performance remains weak despite lenders tightening their credit

standards.

• The industry remains intensely competitive despite subprime origination

volumes declining in 2016 and 2017. Lenders are competing on the

basis of price, quick approvals, and limited stipulations.

• Several subprime auto finance companies are reporting losses due to

competitive pricing and higher loan losses, in part due to lower recovery

rates. While a few are still building scale to improve margins, others

have greatly reduced origination volumes and face liquidity concerns.

Some have gone out of business, and we believe others could fail.

• Private equity and warehouse funding aren’t as plentiful as they were

earlier in the recovery.

• Investors have a growing appetite for subprime auto loan ABS. Several

issuers have issued ‘B’ rated classes this year for the first time.


Subprime Collateral Trends (ECNL >7.5%)

8

120

121

114

112 112

113

114 115

113 113

111 110

104

106

108

110

112

114

116

118

120

122

124

Loan-To-Value (%)


594 594 594

574 575

573

577 577

572

575

578

585

560

565

570

575

580

585

590

595

600

FICO®

16.3

16.7 16.6

17.8

16.3

17.0

16.6 16.7

17.3

16.9

17.8 17.7

15.5

16

16.5

17

17.5

18

WAAPR (%)


Subprime Collateral Trends (ECNL >7.5%)

9

69.0

80.7 85.5

73.6 77.5 76.9

81.3 79.2 83.4 83.3 84.6

78.1

0

10

20

30

40

50

60

70

80

90

% of Loans With Original Term > 60 months


66.9

69.2

69.7

68.0

67.4

67.1

68.0

67.3

68.6 68.5

68.9

67.3

65

65.5

66

66.5

67

67.5

68

68.5

69

69.5

70

Weighted Average Original Maturity


Vehicle Depreciation Versus Loan Amortization Amount

10

• When amortization of the loan balance is spread out over a longer term, the

point at which the obligor gains an equity position in the car is delayed.

• The point at which the vehicle's value exceeds the loan balance comes later

and later in the life of the loan as the loan term lengthens.

$-

$5,000

$10,000

$15,000

$20,000

$25,000

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 70 73 76

Vehicle Value 48 mth term 60 mth term 72 mth term 78 mth term


Longer-Term Subprime Auto Loans Are Leading To More Back-Loaded Losses

11

• Longer-term loans affect the timing of losses: losses become more back-

loaded and extend for a longer period of time.

• We observed a shift in the loss curve to 25-60-84-98-100 for the 2011

vintage from 32-70-90-100 for the 2003 vintage. As the chart shows, the loss

curve for the 2011 vintage is slower and longer, and its losses extend into

year five.

0%

20%

40%

60%

80%

100%

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53

Yearly Vintage Loss Curve

2003 Vintage 2011 Vintage


Subprime Auto Loan ABS Performance

12

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43

Cu

mu

lati

ve

Ne

t L

os

s (

%)

S&P’s Subprime Auto Loan Static Index - Cumulative Net Losses (%) By Vintage

2008 2009 2010 2011 2012 2013

2014 2015 2016 Q1 2017 Q2 2017

2010

2011

2009

2008

2012

2014

2015

Q1 2017

Q2 2017

2016



Subprime Auto Loan ABS Performance

13

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43

Cu

mu

lati

ve

Ne

t L

os

s (

%)

Modified Subprime Auto Loan Static Index - Cumulative Net Losses (%) By Vintage

2008 2014 2015 2015 Modified2016 2016 Modified Q1 2017 Q1 2017 ModifiedQ2 2017 Q2 2017 Modified

2014

2015

Q1 2017

Q1 2017 Modified

Q2 2017 Modified

2016

2015 modified

Q2 2017

2016 Modified

2008



Modified Subprime Cumulative Recoveries (%)

14


20.00

25.00

30.00

35.00

40.00

45.00

50.00

55.00

60.00

1 4 7 10 13 16 19 22 25 28 31 34

2013 2014 2015 (i) 2016 Q1 2017 Q2 2017

2014

2015

2016

Q1 2017

Q2 2017

2013


2015 Cumulative Net Losses by Issuer - Subprime

15


Subprime Index

American Credit Acceptance

AmeriCredit

CarFinance

CPS

Drive DriveTime

Exeter

First Investors

Flagship

SDART

UACC

Westlake

-

5

10

15

20

25

30

35

40

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39

Pe

rce

nt

Months

Subprime Index - 2015

American CreditAcceptance

AmeriCredit

CarFinance

CPS

Drive

DriveTime

Exeter

First Investors

Flagship

Prestige

Santander(SDART)

UACC

Westlake

JD Byrider(CarNow)

JD Byrider

Prestige


2016 CNLs by Issuer - Subprime

16


Subprime Index

ACA

AmeriCredit

JD Byrider

CPS

Drive

Exeter

First Investors

Flagship

Foursight

Honor

Tidewater

SDART -

5

10

15

20

25

30

1 3 5 7 9 11 13 15 17 19 21 23 25 27

Pe

rce

nt

Months

Subprime Index - 2016

American CreditAcceptance

AmeriCredit

JD Byrider

CPS

Drive

Exeter

First Investors

Flagship

Foursight

Honor

Tidewater

Prestige

Santander(SDART)

Sierra

UACC

Westlake

DriveTime

Sierra UACC

Westlake

DriveTime

Prestige


Q1 2017 CNLs by Issuer - Subprime

17


Subprime Index

CPS

Exeter

First Investors

Flagship

Santander (SDART)

-

2

4

6

8

10

12

14

1 3 5 7 9 11 13 15

Pe

rce

nt

Months

Subprime Index - Q1 2017


AmeriCredit

CPS

Drive

Exeter

First Investors

Flagship

Santander(SDART) incl. not rated

Westlake

DriveTime

Drive


AmeriCredit

Drivetime

Westlake


Performance Analysis CNL Is Only One Factor

18

0%

2%

4%

6%

8%

10%

12%

14%

16%

1 2 3 4 5 6 7 8 9 101112131415161718192021222324252627

CN

L

Month

Cumulative Net Loss (CNL)

Westlake Automobile Receivables Trust 2016-1Exeter Automobile Receivables Trust 2016-1CPS Auto Receivables Trust 2016-A

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27

Po

ol F

acto

r

Month

% of Original Collateral Remaining (Pool Factor)

Westlake Automobile Receivables Trust 2016-1

Exeter Automobile Receivables Trust 2016-1

CPS Auto Receivables Trust 2016-A


Pool Factor Analysis

19

0%

2%

4%

6%

8%

10%

12%

14%

16%

0%10%20%30%40%50%60%70%80%90%100%

CN

L

Pool Factor

Cumulative Net Loss Relative to Orig. Collateral Outstanding (Pool Factor)

Westlake Automobile Receivables Trust 2016-1 Exeter Automobile Receivables Trust 2016-1

CPS Auto Receivables Trust 2016-A

CPS ≈10% Exeter ≈11%

Westlake ≈8%


Subprime Auto Loan Rating Actions*

20

*The upgrades/downgrades do not include those based on rating changes on the bond insurer, if any. All rating actions in the table are credit-related.

Year Upgrades Downgrades

2004 6 0

2005 0 0

2006 4 0

2007 13 0

2008 5 0

2009 29 0

2010 4 0

2011 34 0

2012 50 0

2013 133 0

2014 57 0

2015 169 0

2016 244 0

2017 222 0

2018 YTD (as of May 22) 127 0

Total 1,097 0


S&P’s Subprime Auto Finance Outlook

21

• Losses will remain under pressure due to lower used vehicle values.

• Higher interest rates will inflate funding costs and squeeze profit margins.

• Providers of capital, including warehouse lenders, have become more

selective.

• We’re late into the credit cycle. As we’ve seen before, after several years

of loan growth and competition-induced weaker lending standards, credit

losses rise and some companies fail.

• Consolidations and portfolio sales are likely to increase. History has

shown that auto loan portfolios can be successfully transitioned.

• Auto loan ABS ratings outlook is stable, but subprime non investment

grade classes may incur downgrades. The ‘BB’ and ‘B’ rated classes

have lower loss-absorbing cushions and mild deterioration could result in

downgrades.


22

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