Direct loans and APR prop up Flagship ABS

Flagship Credit Acceptance’s July 23 securitization, which funneled $213 million into the ABS market, saw a rise in the APR and concentrations of direct loans, offsetting the need for increased credit enhancement even as the company’s projected losses increased, according to a S&P Global presale report.  
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“In our view, the greater proportion of direct loans, which historically performed better than the indirect loans — coupled with lower debt-to-income (DTI) and payment-to-income (PTI) ratios and a reduction in the percentage of loans with terms greater than 60 months — offset the decline in called collateral and seasoning,” according to the report.

The percentage of direct loans increased 116 basis points (bps) from the lender’s second securitization to 29.1%, and the average APR on the securitization classes rose to 16.16%, an increase of 2 bps. DTIs in the securitization decreased 140 bps to 31.7% from the May securitization, while PTIs dipped 3 bps to 10.3%. 

Flagship expects cumulative net losses on its collateral pool to be between 14.0% and 14.5% for the lifetime of the notes as a result of expected rise in unemployment rates, according to the report. 
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Drops in other types of credit enhancement in the third securitization were offset by the higher APR, lower bond cost and increases in excess spread, according to the presale report. Reserves fell to 1.50% from 2.00% in the May issuance. The target overcollateralization dropped to 9.80% from 12.60% and initial overcollateralization also fell 160 bps to 5.00% from May. ​

Flagship Credit Accetpance had an outstanding portfolio of $3.2 billion as of June 30, according to S&P, an increase from $3 billion in the same corresponding period in 2019. The Chadds Ford, Pa.-based company is a 15-year-old privately owned auto lender that specializes in subprime financing.

​Originally published on Auto Finance News