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Spread-tightening evident throughout structure of $1.21B Santander subprime auto ABS deal


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Spread-tightening evident throughout structure of $1.21B Santander subprime auto ABS deal

Daysafter Santander Consumer USA HoldingsInc. officials discussed the magnitude and nature of in the capital markets,particularly in the more subordinated tranches of ABS deals, pricing informationfor the company's latest subprime auto securitization suggests significant tighteningthroughout the capital structure.

The spreadsreported in a free-writing prospectus for the $1.21 billion Santander Drive AutoReceivables Trust 2016-2 filed late May 3 with the SEC compare favorably to thoseassociated with the comparable tranches of the two previous deals for SantanderConsumer's cornerstone subprime ABS platform. And, in the case of the AAA-ratedtranches, the spreads narrowed to their tightest levels since a June 2015 transaction.

The $267million in class A-2-A notes of Santander Drive Auto Receivables Trust 2016-2 hada coupon of 1.38%, or 65 basis points in excess of the eurodollar synthetic forwardrate. The spread is 10 basis points narrower than that associated with the classA-2-A notes of February's Santander Drive Auto Receivables Trust 2016-1. The spreadsover the same benchmark rate totaled 68 and 70 basis points, respectively, for thefinal two Santander Drive deals of the 2015 vintage; the class A-2-A notes of SantanderDrive Auto Receivables Trust 2015-3 in June 2015 carried a spread of 50 basis pointsover the benchmark rate.

The $83million in the companion class A-2-B notes were priced to float at 65 basis pointsover one-month LIBOR. That, too, marked the tightest level for a comparable tranchesince the class A-2-B notes of Santander Drive Auto Receivables Trust 2015-3 floatedat 51 basis points over one-month LIBOR.

The $161.9million in class A3 notes were priced at 70 basis points over the eurodollar syntheticforward rate, representing a coupon of 1.56%. That represents tightening of 20 basispoints from the spread over the same benchmark rate for the class A-3 notes in SantanderDrive Auto Receivables Trust 2016-1.

Marketparticipants have observed a bifurcation in the level of investor appetite in recentmonths, with strong demand for the more senior tranches of auto ABS deals and lesserdemand for the more junior pieces. But in the case of Santander Drive Auto ReceivablesTrust 2016-2, spreads on the three subordinated classes to be offered to the publicalso narrowed considerably.

The $163.2million in class B notes, which Moody's and Fitch Ratings planned to rate at Aa1and AA, respectively, have a spread of 115 basis points over a benchmark interestrate, for a coupon of 2.08%. The $175.3 million in class C notes, which Moody'sand Fitch are expected to rate at A1 and A, have a spread of 165 basis points overa benchmark rate, for a coupon of 2.66%. The $104.5 million in class D notes, dueto be rated Baa2 by Moody's and BBB by Fitch, were priced at 230 basis points overa benchmark rate, representing a coupon of 3.39%.

The spreadson the class B, C and D notes as reported in the free-writing prospectus are 55,60 and 80 basis points tighter, respectively, than those associated with the comparabletranches of Santander Drive Auto Receivables Trust 2016-1. They range from 5 to25 basis points narrower than those for the comparable parts of the October 2015Santander Drive Auto Receivables Trust 2015-5, but they remain between 20 and 40basis points wider than the levels at which the June 2015 securitization priced.
The $67.4 million in class E notes are not being offered pursuant to the prospectusfiled with the SEC, which is consistent with the issuer's past practice.

The dealis expected to settle May 11.