Asset

Driveway Finance presents its first ABS agreement


Driveway Finance Corp. launched its first auto loan asset-backed security (ABS) which pools loans to new and used car buyers concentrated in five states and who have average FICO scores below 700.

The first $ 344.39 million LAD Auto Receivables Trust 2021-1 (LADAR 2021-1) is divided into four tranches: a $ 282.77 million item rated “AA” that provides credit enhancement (CE) by 23.9%; a portion of $ 18.34 million rated “A” with a CE of 18.9%; a $ 26 million coin rated “BBB” with an 11.8% CE; and a $ 17.24 million coin, rated ‘BB’ with a CE of 7.1%, according to rating agency Kroll Bond (KBRA) in a November 15 pre-sale report.

term loans, making them more vulnerable to economic downturns during the repayment period. ” width=”840″ height=”560″/>

Rising auto prices encourage borrowers to resort to longer-term loans, making them more vulnerable to economic downturns during the repayment period.

The deal will be sponsored, sold and serviced by the Oregon Driveway Finance Corporation (DFC), formerly known as Southern Cascades Finance Corp. DFC’s parent company, automotive retailer Lithia, has been in business for over 75 years, operating DCF for about a decade. DCF shares its management team with Lithia. Lithia is a Fortune 500 company that operates 277 dealerships in 27 states of the United States and three Canadian provinces. Lithia has assets worth $ 10.2 billion and equity of $ 4.5 billion.

In September, the average principal balance of the pooled loans was $ 30,617 and each loan agreement had an annual percentage rate (APR) of at least 2.54% and up to 27%. Sixty-one percent of cars are used, the rest are new. Borrowers have a non-zero weighted average FICO score of 669.

Borrowers include a large number of sub-prime clients who may have limited incomes and irregular credit histories, KBRA noted. Subprime loans come under scrutiny by the Consumer Financial Protection Bureau and state regulators for abusive auto-lending practices.

The perception that lenders are engaging in predatory lending could cause capital providers to exit the subprime market in the event of an economic downturn, KRBA said, adding that this in turn could have an impact on financial condition and liquidity. of the company.

Post-pandemic issues, including supply chain bottlenecks, changing consumer behaviors and a tight labor market, could worsen during the duration of the securitization, the report warned. In addition, rising auto prices encourage borrowers to resort to longer-term loans, making them more vulnerable to economic downturns during the repayment period.

The top five states in terms of capital balance – Texas (32.6%), California (22.6%), Florida (9.23%), Oregon (7.32%) and Nevada (5.4%) – represent 77% of the pool of guarantees.