Subprime auto lender CarFinance prices its first rated ABS

Thu May 23, 2013 1:25pm EDT

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NEW YORK, May 23 (IFR) - Taking advantage of a slow week of issuance in the ABS primary market, subprime-auto lender CarFinance Capital (CFC) successfully priced its first rated transaction, the US$238.43m CarFinance Capital Auto Trust (CFCAT) 2013-1.

This week's deal is the company's second term transaction. The company's inaugural securitization was a private, unrated term transaction totaling US$160.25m, which priced back in August 2012.

Demand was staggering as approximately fifty investor accounts participated across the deal, even though CFC has only 22 months worth of data since it was set up by asset manager Perella Weinberg Partners in 2011. That introduced performance uncertainty related to both its operations and auto loan portfolio.

"The issuer had been on the road for several days and effectively communicated its strategy to investors who then quickly became comfortable with the structure," said a senior ABS banker.

Credit Suisse (structuring lead) and Deutsche Bank were joint underwriters for the latest transaction while Moody's and Kroll assigned the ratings. The collateral consisted of subprime-quality retail installment auto loan contracts with a weighted average FICO score of 599.

The US$152.42m class A tranche, rated A3/AA by Moody's and Kroll, offered investors approximately 41.75% of initial hard credit enhancement, roughly double what is offered on a Single A tranche from benchmark subprime issuers Santander and AmeriCredit.

The senior-most tranche was initially talked at EDSF plus 150bp-165bp before tightening at pricing to 135bp. The class A note was approximately 7.5 times oversubscribed and was the most broadly distributed class with approximately two dozen investor accounts participating.

The structure also consisted of a 2.97-year Baa1/A+ slice and a 3.94-year Baa3/A-. After guidance was disseminated at interpolated swaps plus 250bp-275bp and 300bp-325bp, pricing levels rallied to 225bp and 275bp, respectively. The 2.97-year tranche was heard to be a whopping 8.5 times oversubscribed while the 3.94-year class was 6.5 times oversubscribed.

The most subordinated tranche was the 3.96-year Ba3/BBB, which priced at interpolated swaps plus 400bp after being talked at 425bp-450bp. The slice was approximately 7.7 times oversubscribed with just under ten investor accounts participating.

"This transaction should also support secondary trading as investors who did not get their allotted shares will be looking to pick up a larger piece of supply," said the banker.

Perella Weinberg Partners formed CarFinance in 2011 as part of its Asset Based Value Strategy. Perella also owns subprime auto-finance company Flagship Credit Acceptance.

Flagship has been originating and servicing loans for over seven years. In addition, credit enhancement on its class A A+/AA- (S&P/KBRA) required only 25.24% credit enhancement, as opposed to 41% for CarFinance.

The class A tranche for April's Flagship subprime auto transaction printed at ESDF plus 100bp.

As a comparable, the 0.48-year A+/AA slice of Flagship's inaugural transaction in June 2012 priced at EDSF plus 140bp. That transaction had initial credit enhancement of 71% for the class A tranche.

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