Exeter's latest ABS deal puts spotlight on growth strategy

By Charles Williams

May 3 (IFR) - Fast-growing subprime auto lender Exeter Finance Corp showed the market this week that it intends to stay focused on getting bigger, opting for size over price in its latest ABS deal.

Only founded in 2006 but already a significant player in the subprime auto loan sector, Exeter came back to market with its third-ever term asset-backed securities (ABS) deal.

Instead of trying to beat the pricing on its last such deal in September, though, Exeter paid wider spreads across every tranche - but upsized the deal to USD400m from USD300m.

This seemed to indicate that Exeter for the moment will remain primarily focused on growth, particularly since an infusion of private equity money from Blackstone in 2011.

"Given that Blackstone's investment appears to be a growth equity investment, a growth strategy would have issuance strategy implications," said one senior ABS banker.

"So the size of the transaction may be more important than the pricing."

Consumer ABS strategists say the focus on growth may mean that the company is laying the groundwork for a strategic buyer - or that Exeter ultimately wants to go public. The company declined to comment.

BIGGER AND BIGGER

The Texas-based lender, started by former executives of AmeriCredit (now known as GM Financial), increased the size of the latest deal due to investor demand.

According to a source close to the transaction, the deal likely freed up a significant portion of the company's warehouse facility, allowing it to originate auto loans more quickly.

Exeter reported USD100m in originations in 2010, according to a Reuters news story earlier this year, and expects to hit USD2.2bn by 2015.

While that desire to grow could explain why Exeter settled for wider spreads on its latest deal compared to the September offering, another factor may be that investors' interest in plain vanilla ABS is waning somewhat as they seek out higher-yielding asset classes.

In fact, sell-side sources say, one top ABS investor has moved most of its ABS allocations into higher-yielding investments.

So in order to continue to entice investors, some issuers have had to sacrifice spread in order to be able to continue to grow.

WIDENING OUT

The yield on the AA/AAA tranche (S&P/DBRS) of this week's deal was slightly tighter compared to September, though experts said this was due to the fact that benchmarks have lately been trending down.

All others widened.

The 1.18-year senior tranche - also a split-rated AA/AAA - was talked at EDSF plus 95bp-100bp. It priced on the wide end of guidance at EDSF plus 100bp with a yield of 1.297%.

The senior tranche of the September offering, again split rated AA/AAA by S&P and DBRS, printed 5bp tighter with a spread of EDSF plus 95bp and a yield of 1.312%.

The rest of the capital structure on the latest deal consisted of Single A, Triple B and Double B rated notes with tenors of 2.91, 3.64 and 4.02 years, respectively.

Guidance was disseminated at interpolated swaps plus 185bp-195bp, interpolated swaps plus 300bp area and interpolated swaps plus 450bp area. Final pricing levels were set at 200bp, 300bp and 450bp.

September's Single A and Triple B classes were printed tighter at interpolated swaps plus 175bp and 250bp, while the Double B slice was printed at the same pricing level of 450bp.

Citigroup and Wells Fargo were the joint leads on both transactions.

According to DBRS Ratings, the collateral on the new deal had weighted average seasoning of approximately three months and a weighted average FICO credit score of 559.

The portion of loans originated to obligors with over 600 FICO increased to 16.31% from 14.56% in the prior 2012-2 series.

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