As some market observers continue to await a subprime auto finance "shakeout" through industry consolidation, a downturn in consumer credit or some combination of both, trends among certain privately held players show evidence of a still-vibrant environment.
A review of rating agency analysis of asset-backed securitizations sponsored in recent months by several private subprime auto lenders finds strong growth in the portfolios of established companies and the emergence of yet another new entity in a business that continues to be characterized by fragmentation.
DBRS expects the inaugural securitization of the new entrant Arivo Acceptance LLC to close Oct. 10. Arivo Acceptance was formed in 2017 as is part of Salt Lake City-based automobile retailer Garff Enterprises Inc.
The DBRS presale report for the $166 million securitization indicates that Arivo acquires loans on an indirect basis through a network of approximately 1,800 dealerships mostly spread across the West and Southwest. Only a small portion of the company's originations involved Garff-affiliated dealerships, the rating agency noted, as it seeks to operate as an independent entity.
Loans in the $147.2 million pool had a weighted average borrower FICO score of nearly 590 and a weighted average loan-to-value ratio of 120.7%, according to DBRS. Used vehicles account for 78.6% of the Arivo Acceptance Auto Loan Receivables Trust 2019-1 pool by aggregate principal balance.
The company joins an active field of subprime auto lenders that engage in securitization, which includes the publicly traded Santander Consumer USA Holdings Inc., the General Motors Financial Co. Inc. captive finance arm of General Motors Co. and numerous other companies with backing by private equity firms or private investors.
Notable among the latter category of entities has been the portfolio growth that they have achieved amid expectations that new vehicle sales will decline in full year 2019 and worries that we are late in the current economic cycle.
A review of S&P Global Ratings ABS presale reports for four privately held subprime auto securitizers finds that the aggregate principal amount outstanding for the managed portfolios of each of the sponsors grew more rapidly during a 12-month period ended June 30 than they did in either of the two most recent full calendar years.
The Perella Weinberg Partners Asset Based Value Strategy-backed Flagship Credit Acceptance LLC's managed portfolio grew by nearly 7% between June 30 of the previous two years after it declined by single-digit percentages in calendar years 2017 and 2018, according to data reported by S&P Global Ratings.
The privately held American Credit Acceptance LLC achieved double-digit managed portfolio growth in each of the past five calendar years, but the 31.5% expansion it achieved during the 12-month period ended June 30 was higher than those previous results, according to data reported by S&P Global Ratings.
Global Lending Services LLC, which has backing from BlueMountain Capital Management LLC, saw its trailing-12-month managed portfolio growth rate accelerate to 89.5% through June 30 from 83.6% in calendar year 2018, according to data reported by S&P Global Ratings.
The predecessor entity to Exeter Finance Corp., the Irving, Texas-based lender whose January filing of a registration statement for an initial public offering ignited speculation about possible changes in the subprime auto lending landscape, saw its managed portfolio growth rate rise to 32.6% for the 12 months ended June 30 from an expansion of 10.8% and 24.7% in calendar years 2017 and 2018, according to S&P Global Ratings.
Of those four entities, Exeter brought the most recent deal to the ABS market, the $650 million Exeter Automobile Receivables Trust 2019-4. The company last filed an amended registration statement in February.
S&P Global Ratings said in its presale report for the securitization that Exeter majority owner Blackstone Group Inc. "has demonstrated an ongoing ability and willingness to support the business."
Charles Bradley, chairman, president and CEO of publicly traded subprime auto lender Consumer Portfolio Services Inc., offered one hypothesis during a July conference call regarding the recent expansion achieved by his company's competitors.
"People are ... trying to grow like crazy because this is the moment where a lot of the [private equity] guys need to make some decisions, and so trying to have these companies do well is exceedingly important," Bradley said.
"In the end, everybody, including us particularly, [is] waiting for the shakeout of some of these players that are PE-backed and looking for results," he added.
