A pool of subprime auto loans on new and used vehicles secures the GLS Auto Receivables Trust, 2022-2, which is expected to issue $694.3 million in notes.
JP Morgan Securities is the lead manager structuring the transaction, which will issue notes through a senior-subordinate sequential fee structure. Global Lending Services originates the loans and sponsors the securitization, for which it also acts as seller, custodian and servicer, according to ratings agency Kroll Bond.
The notes will benefit from an overcollateralization – initially 8.9% of the denomination pool balance. This level will increase to a target equal to the sum of 12.5% of the current pool balance plus 1.5% of the closing pool balance.
A cash reserve account and excess spread include other forms of credit enhancement. The first is funded at closing with an amount equal to approximately 1.0% of the pool balance at the closing date. As for the excess spread, this amount is fixed at approximately 7.4%, an amount based on a weighted average interest rate (WA) of 15.5%, less 3.0% of gross management and backup, and a bond coupon of 5.1%, according to KBRA. .
The rating agency plans to assign a K1+ rating to the $76.3 million A-1 notes. For the remainder of the deal, KBRA plans to assign ratings ranging from “AAA” on the $284.7 million Class A-2 notes to “BB-” on the $55.2 million Class E notes. millions of dollars.
S&P Global Ratings plans to assign ratings of A-1+ for A-1 ratings to “BB-” for E-class ratings, the rating agency said.
Founded in 2011 and majority-owned by Assured Investment Management, Global Lending Services provides loans through franchise and independent car dealerships. The company has been profitable since 2017, serving a target customer base of borrowers who typically have credit scores ranging from 470 to 620. As of the April 30, 2022 deadline, the loans had a weighted average (WA) FICO score of 576.
KBRA cited several aspects of Global Lending Services’ operations that are potentially positive for credit. The company relies on automated underwriting to generate 100% of its loans, which improves the efficiency and consistency of the loan application process.