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Jan 9 (IFR) - Santander Consumer USA on Wednesday led the charge for the subprime auto ABS sector by pricing the first such ABS in 2013 - a US$1.25bn trade - at levels much tighter than recent transactions despite adopting a more aggressive structure.
Santander is a regular issuer of subprime auto ABS in the US securitisation market, and being a programmatic issuer clearly helped its latest transaction.
Popularity and confidence in the name was so much that even though Santander included pre-funding in the structure for the first time since 2007, it did not hurt investor interest.
A presence of a pre-funding account means additional risk to an ABS, because funds in this account would be used to purchase additional collateral during a post-closing period. The risk is that new auto loans delivered to the trust could be poorer in credit quality versus those already in the pool.
"Pre-funding introduces ambiguity to collateral characteristics and cash flow timing," said Fitch in their report on the deal.
An S&P presale report said the agency expected the Santander DART 2013-1 transaction to experience cumulative net losses in the 13.50%-14.50% range - slightly higher than the agency's own 13.25%-14.25% loss range for SDART 2012-A, due to a lower internal credit score.
"Our expected loss also accounts for the impact of using pre-funding in this transaction," the S&P report said.
"On the closing date, approximately US$202.85m of the proceeds from the sale of the notes will be deposited into a pre-funding account."
These funds will be used to acquire receivables by February 28 2013 of about US$221.69m, which amounted to 15.7% of the total pool balance.
Yet bankers said investors were comfortable with the transaction despite the pre-funding account.
"With the tight funding window and rigorous restrictions in place for subsequent collateral additions, investors were comfortable with the re-emergence of the pre-funding account," said Jay Steiner, head of banking and origination, structured credit in the Americas, at Deutsche Bank.
Under the structure, more receivables cannot be acquired through the pre-funding account if the effect of such acquisition would reduce the weighted average contract rate of all subsequent receivables to less than 16.73%; cut the weighted average loss forecasting score to less than 561; increase the weighted average LTV ratio to more than 116.02%; cut the weighted average FICO score to less than 590; or increase the weighted average remaining term to maturity to greater than 69.55 months.
The deal was hugely successful, attracting huge investor demand despite pricing at one of the tightest levels Santander has achieved in the post-crisis era by Santander.
"2013 has picked up where 2012 left off, with an oversubscribed and very broadly distributed transaction," Steiner said.
The weighted average spread on the latest Santander deal down through the Triple Bs was approximately 81bp, while the weighted average yield was 1.29%.
As a comparable, the 2012-1 series that priced a year ago had a weighted average spread of approximately 224bp and yield of 2.92%. Santander's 2012-6, which priced in October, had a weighted average spread of 109bp and yield of 1.52%.
The short-term money market class was priced at a yield of 0.26% and was bought by roughly a dozen investors. It was 2.7 times oversubscribed.
The Triple A rated 0.85-year slice was talked at EDSF plus 20bp-23bp, before tightening at pricing to plus 18bp. The tranche was 3.5 times oversubscribed, and was purchased by about two dozen investor groups.
The Triple A rated 1.91-year note and the Double A rated 2.74-year note were printed at EDSF plus 25bp and interpolated swaps plus 70bp. Guidance levels were seen at 80bp area and 130bp area, respectively. Both tranches were purchased by nearly a dozen investors and were 2.8 times oversubscribed.
The Single A rated 3.44-year class was priced at interpolated swaps plus 120bp and was roughly 3.5 times oversubscribed, while the Triple B rated four-year slice was stamped at interpolated swaps plus 160bp and was a whopping 7.5 times oversubscribed. The four year Double Bs were retained by the issuer, but are likely to be sold at a later date. Citigroup (structuring lead) and Deutsche Bank were joint bookrunners.