Hyundai Auto Receivables Trust has issued a nearly $1.36 billion auto loan asset-backed securitization that is expected to receive a stable rating from Fitch Ratings.
The transaction, HART 2022-B, includes $286 million Class A-1 with an F1+sf rating maturing on July 17, 2023; $473.4 million Class A-2A/B with AAAsf rating due May 15, 2025; $429.1 million in Class A-3 notes due November 16, 2026; and $103.7 million in Class A-4 AAAsf notes due August 15, 2028.
The collateral pool consists of new and used loans on cars made by Hyundai Motor and Kia Corp. Hyundai Capital America, which is 80% owned by Hyundai Motor America and 20% by Kia America, is the originator and servicer of the loan.
Fitch last affirmed Hyundai’s issuer default rating at “BBB+” with a stable outlook in April.
The rating agency expects a stable performance of the loan portfolio in the future. Portfolio defaults have been trending down since 2018 and securitization losses have leveled off since 2017, according to Jennifer LeMonds and Katrina Broski, the Fitch analysts who wrote the report. A cumulative net loss indicator of 1.6% for 2022 is derived from securitization yield data from 2015 to 2018. This is less than 1.7% for securitization 2022-A.
HART 2022-B offers credit enhancement to 7.8% for Class A tickets, 6% for B tickets and 3% for C tickets.
The initial hard credit improvement is sufficient to withstand “all classes of notes at each class’s respective loss coverage multiples,” the analysts wrote. This is despite interest rate volatility and lower excess spread expectations, which for 2022-B are still slightly higher compared to 2022-A.
Positives in the collateral pool include a weighted average FICO score of 764. FICO scores above 750 represent 56.9% of the 2022-B pool. The seasoning of loans at 11.4 months in this securitization is greater than 8.1 months for 2022-A. In addition, up to 95.1% of the vehicles in the pool are new and show a strong diversification of models and segments.
Fitch assessed the effect of the USD Overnight Fund Rate Composite Index on the securitization as neutral, although the Class A-2B Notes will bear interest at a variable rate based on SOFR, which, analysts said was “not yet widely established in the market”. .” Upside pressures on interest rates for Class A-2B notes, however, are “no different from benchmark Libor notes,” the analysts added.
Electric and hybrid vehicles represent 9% of the warranty pool, which did not impact Fitch’s neutral score of three for environmental, social and governance relevance. This means that ESG issues are credit neutral or have minimal credit impact on the transaction due to their nature or type of management.
Among the risk factors related to bond performance, the report includes national or regional economic downturns, weakness in the wholesale vehicle market leading to low vehicle salvage rates, bankruptcy and poor maintenance.