AMCAR Securitizations: Effective structure, stable performance
Sein recently reviewed the performance and structural integrity of all outstanding AMCAR securitizations and found the following:
- Excess spread of each transaction is initially quite large and deteriorates over time as each transaction seasons. With early excess spread being applied as extra principal to either maintain or build the specified overcollateralization percentage
- Reserve Accounts are always fully funded
- Cumulative losses are well within our expected base loss assumption of 11%
- Structural protections of the trusts; Accelerated Principal Amount, Reserve Account and Principal Parity Amount (PPA) have proven resilient with respect to the performance of underlying collateral
AmeriCredit is a seasoned originator and securitizer of subprime auto loans with over 20 years of experience. The company was purchased by General Motors in October 2010 and renamed General Motors Financial Company, Inc. On average, AmeriCredit issues three to five securitizations each year under the AmeriCredit Automobile Receivables or AMCAR program. This report focuses on outstanding securitizations under the AMCAR program from 2011 through 2015, covering 20 active AMCAR securitizations.
EXCESS SPREAD: First layer of protection
Monthly excess spread is the difference between (a) monthly interest payments from the underlying collaterals minus (b) the sum of (i) the interest on the notes and (ii) any trust related expenses. Initially, all excess spread is allocated as principal payment to the notes until the level of overcollateralization reaches the specified level (see the discussion on Overcollateralization below). After which, excess spread is available to first cover any interest or principal shortfall, then to rebuild the reserve account and finally is released to the issuer.
We find that the amount of excess spread whether in absolute or annual percentages is highest during the first 10-15 months after issuance and then declines gradually. The gradual decline in excess spread overtime is standard and the higher rated bonds with lower coupons amortize. In the early months, excess spread is captured and applied as principal to the notes until overcollateralization as a percentage reaches the specified amount.
OVERCOLLATERALIZATION: Second layer of protection
Each transaction is structured with an initial level of overcollateralization between 5.25-5.75% of the aggregate unpaid principal balance of the loans. In each subsequent period the level of overcollateralization is calculated as the end of period collateral balance minus the sum of the aggregate principal balance of each class of bonds after application of principal payments plus the available amount in the reserve account, and expressed as a percentage. For the 20 securitizations, the required level of overcollateralization is between 14.25-14.75%.
We observe no deterioration from net losses to the overcollateralization for any of the transactions. Any decrease in the level of overcollateralization was attributable to the Step-Down Amount. In short, once the amount on deposit in the reserve account exceeds the product of the ending collateral balance and the specified enhancement percentage, amount allocated as principal distribution are released to the issuer.
RESERVE ACCOUNT: Extra liquidity feature
Each transaction has a reserve account that is fully funded at closing and is usually specified to be approximately 2% of the original pool balance. The reserve account is available to cover unpaid trust expenses, interest on the notes, principal on the notes as Principal Parity Amount or principal required to fully amortize each class of notes on its scheduled final payment date. Withdrawals from the reserve account must be replenished by excess spread in subsequent distribution dates.
All reserve accounts are fully funded and no withdrawals are reported.
PRINCIPAL PARITY AMOUNTS: Build overcollateralization indicator
On each distribution date, the PPA for each class of notes is calculated as:
|Principal Parity Calculation|
|Class A||Max(Class A Balance – Pool Balance, 0)|
|Class B||Max(Class A + B Balance – Pool Balance, 0)|
|Class C||Max(Class A + B + C Balance – Pool Balance, 0)|
|Class D||Max(Class A + B + C + D Balance – Pool Balance, 0)|
|Class E||Max(Class A + B + C + D + E Balance – Pool Balance, 0)|
For each non-zero PPA calculation, a corresponding amount is subtracted from the current available funds and added to the principal amount payable to the notes in accordance with the priority of payments.
For the transactions we reviewed, there were instances where the PPA is non-zero but in each instance there was sufficient available funds to cover the PPA amount without withdrawing funds from the reserve account.
POOL PERFORMANCE: Stable, but the past is not a predictor of future performance
Our base case loss assumption of 11% for the AMCAR shelf is based on the collateral characteristics and historical performance. On average 90% of AMCAR loans have FICOs below 659. However, the average AMCAR APR of 14.35% is significantly lower than than the 20-25% APR observed for subprime issuers Global Lending Service and Skopos Financial. For the 10 transactions with 30 or more months of seasoning, we note that the 2011 vintage has the lowest cumulative losses, the 2012 vintage is the worst performer, and the 2013 vintage performing in the middle of the two. It is too early to draw any significant conclusions on the 2014 and 2015 vintages, but we will follow-up in a future article on the AMCAR program. In 2014 and 2015 there could be higher losses due to the excess supply of used cars for sale, based on initial reports, for example the article “Subprime-Auto Pros Fear ‘Perfect Storm’” from November 2015’s Asset-Backed Alert.
GREAT, HOW DOES IT IMPACT MY BOND?
In general, the level of credit support to each class of bonds, with the exception of the most subordinate bonds, is supposed to gradually increase over time. For this exercise, we assume the level of credit support to a fully amortized class is 100% since the class is no longer subject to any impairment or losses. Further, we exclude the 2015-3 transaction because it has zero months of seasoning.
All AMCAR transactions are purely sequential in the application of principal. In essence, principal payments are applied to the most senior class of notes until its principal balance is reduced to zero before paying principal to the next class of notes.
We graph the credit support levels for each class of notes over time for all 19 transaction and find:
- On average the credit support levels for the class A, B, C and D doubles in about 26 months after issuance. Credit support accelerates as each more senior class of notes is fully amortized;
- Credit support to the class E certificates grows to 2.5-times original credit support within 12 months. However, unlike the other class of notes, credit support slowly declines due to the Step-Down Amount.
In a follow-up piece we will discuss cashflow yield and implications under various voluntary and involuntary prepayments and recoveries.