Exeter sells $1.1 billion in non-prime auto ABS notes

Exeter Automobile Receivables Trust is gearing up for its inaugural issuance of the year by selling $1.1 billion in auto asset-backed securities (ABS) backed by a collection of non-prime grade retail installment auto loan contracts. The deal will involve notes from seven different tranches denoted as classes A, B, C, D, and E, as detailed in a filing with the Securities and Exchange Commission (SEC). Moody’s Ratings has pointed out that the senior notes, specifically A1, A2, and A3, have the advantage of total initial hard credit enhancement of 60.9%. On the other hand, the B, C, D, and E classes possess credit enhancement levels of 45.2%, 32.5%, 18.8%, and 7.4%, respectively. The notes are scheduled to mature between February 17, 2026, for the most senior A1 notes and September 16, 2032, for the class E notes, according to the SEC filing.

Moody’s has considered Exeter’s background as a sponsor and servicer, which includes a portfolio valued at around $11.6 billion non-prime auto loans as of December 31, 2024. According to Moody’s projections, they anticipate a 21% cumulative net loss (CNL) from the EART 2025-1 asset pool, with a loss at a Aaa stress level of 54%, aligning with the expectations from the EART 2024-5 pool. The underwriting for this transaction is being led by Deutsche Bank Securities, BNP Paribas Securities, J.P. Morgan Securities, and Citigroup Global Markets.

Upon closing, all notes, with the exception of the class E notes, will receive credit enhancement through subordination. Additionally, a fully funded non-declining reserve account representing 1% of the pool balance will benefit all notes. Starting with 6.4% in overcollateralization, the over-collateralization is expected to grow to a targeted 12.0% of the outstanding balance, as reported by Moody’s. Despite Exeter’s industry experience, Moody’s has noted that it has low durability as a servicer, which introduces uncertainty into its default probability. The pool significantly favors longer-term loans, representing 58.9% of the original balance in both the base and upsized pools.

A substantial portion of the current pool consists of used cars, comprising 89% of the pool. Moody’s has highlighted that this composition exposes the EART 2025-1 pool to the risk of decreasing used car prices, particularly if demand diminishes due to a slowdown in economic activity. As such, pools with a high concentration on used cars are particularly susceptible to such market fluctuations.