Fifth Third Bancorp will not be the only regional bank to securitize auto loans for the first time since 2015 within the span of less than one month.
An S&P Global Ratings presale report indicates that Bank of the West has prepared the $741.8 million Bank of the West Auto Trust 2017-1, a transaction that is expected to close on or about Oct. 12. The $1.01 billion Fifth Third Auto Trust 2017-1, including a class of notes the issuer intended to retain, was due to close on Sept. 20.
Fifth Third had previously accessed the asset-backed securities market in November 2015. For Bank of the West, the auto ABS drought extends back even longer, to May 2015. Published reports at the time indicated that the bank's efforts to access the market for a second time in 2015 had been derailed by unfavorable market conditions. It previously closed an auto ABS deal in 2014.
Both of the 2015-vintage pools had been especially noteworthy for their inclusion of significant amounts of loans with original terms to maturity of between 73 and 84 months. Approximately 37.6% of the Bank of the West Auto Trust 2015-1 collateral pool consisted of loans with that range of original terms; more than 43% of the Bank of the West Auto Trust 2015-2 consisted of loans of that duration.
That percentage was markedly higher for Bank of the West Auto Trust 2017-1. According to S&P Global Ratings, approximately 59.6% of the pool consisted of the longer-term loans, and the weighted average original term for all of the collateral increased to 75.5 months from 71.9 months in Bank of the West Auto Trust 2015-1.
S&P Global Ratings, in a brief discussion of the "significant amount" of longer-term loans in the latest pool, said that Bank of the West's more than 17-year history of originating the product and its submission of about 10 years of static pool data for its 76- to 84-month paper helped "somewhat" mitigate the situation.
Longer loan amortization schedules increase the potential for borrowers to be underwater, with an outstanding loan balance exceeding the value of the underlying collateral.
The prospectus supplement for Fifth Third Auto Trust 2017-1 did not include a breakdown of the collateral pool by original term, but it noted that loans of up to 84 months in duration were eligible for inclusion. The weighted average original maturity of the pool was 69.6 months and the weighted average remaining term was 56.1 months, implying seasoning of 13.5 months. The weighted average seasoning on the Bank of the West pool was 4.8 months.
One of the more interesting disclosures in the filing was that Fifth Third attempted to exclude loans to borrowers with billing addresses that it believes to be located in areas "most significantly adversely affected" by Hurricane Harvey. Even so, Texas loans accounted for 7.7% of the aggregate original principal balance of the Fifth Third Auto Trust 2017-1 pool, second highest behind Ohio's 9.7%. Texas loans represented 9.3% of the Fifth Third Auto Trust 2015-1 pool.
A Fifth Third affiliate plans to retain all $221.4 million of the class A-1 notes and at least 5% of the initial principal amount of the other class A parts of the deal.
The $225 million fixed-rate class A-2-A tranche of the 2017-1 transaction was priced Sept. 13 at a spread of 15 basis points over a benchmark rate for a coupon of 1.59%. The $79 million floating-rate class A-2-B piece carries a spread of 15 basis points in excess of the one-month London Interbank Offered Rate. The spreads on the $390 million class A-3 tranche and $95.5 million class A-4 piece were 23 and 36 basis points over a benchmark rate, representing coupons of 1.80% and 2.03%, respectively.
Spreads on the comparable tranches of the November 2015 deal ranged from 53 basis points on the class A-2-A notes to 75 basis points on the class A-4 notes, for coupons of 1.02% and 1.79%, respectively.
S&P Global Ratings established an expected cumulative net loss for Bank of the West Auto Trust 2017-1 of between 1.45% and 1.65%. Its expected cumulative net loss for Fifth Third Auto Trust 2017-1 is from 0.65% to 0.75%.
In addition to the higher level of seasoning and shorter original loan terms, the Fifth Third pool also had a lower weighted average loan-to-value ratio at 91.4%, versus 105.2% for the Bank of the West pool.