GM's subprime auto ABS catches a bid

NEW YORK: GM Financial gave the US$43bn subprime auto ABS market a shot of confidence on Tuesday after upsizing and pricing a deal well inside guidance levels.

The AmeriCredit trade was increased to US$1.2bn from US$1bn, and spreads on the trade's riskier classes were pulled in by up to 10bp - bucking a trend over the past few months where smaller subprime deals have been forced to offer higher yields to clear and outstanding deal performance has slumped.

"We seem to have a different set of sheet music that we've been dealing with," one syndicate banker told IFR.

"It's been a long time since we had battles over allocations. And we could have done a much larger transaction."

The bond packaged new and used car loans to borrowers with low average 574 FICO score at rates of 12% into investment-grade securities, according to a Moody's Investors Service presale.

The longest 2.11-year A3 tranche of Triple A bonds priced 5bp inside initial guidance at 75bp over interpolated swaps, while lower rung tranches - which were already subject on Monday morning - came off at even tighter levels.

Spreads on its bottom 3.88-year Baa2/BBB rated bonds narrowed to 265bp over iswaps from talk in the 275bp area.

Both the Triple As and Triple Bs were inside the sector's 52-week respective highs of 78bp and 270bp hit in October and February, according to Wells Fargo data.

The last big deal from a top-tier subprime issuer was Santander's US$1bn trade in February. Its similar 2-year Triple A class priced at wider levels of 90bp over EDSF, while its BBB/Baa2 class of 4-year notes came at 310bp.

One portfolio manager, who did not buy the AmeriCredit bonds, said higher returns in the asset class reflected greater risks, such as higher borrower delinquencies and increased loss rates. But he said there was value in some deals.

"Everything (in subprime autos) is getting painted with a broad brush," the portfolio manager said.

AmeriCredit deals are among the most liquid in the secondary asset-backed market - making them more appealing to the buyside.

The platform also targets less financially stressed borrowers than other subprime ABS issuers.

Moody's pegged the deal's expected cumulative net loss estimates at 9% - as their base case scenario. That's well above the current 3%-5% figure currently seen on deals issued by AmeriCredit from 2013 to 2015, according to data firm Intex, but lower than in other trades.

DriveTime, which is in the market with a US$300m subprime ABS, has bundled used car loans to borrowers with lower 541 FICOs at rates of 20%, according to a Standard & Poor's presale.

While S&P said it expects losses on the new DriveTime deal to reach 29%-30%, Intex data showed some DriveTime deals from 2013 deals had reached cumulative losses of 25%.