Cascade Targets Massive $3.1 Billion Auto Lending Inaugural ABS

Cascade Funding has launched its first auto loan asset-backed (ABS) security, stemming from its multi-billion dollar acquisition of auto loans from KeyBank, which aggregates loans to buyers of new and used cars with ratings top credit rating in the United States.

Sponsor’s CFMT 2021-AL1 Trust deal is a massive $3.1 billion inaugural securitization, of which Moody’s Investors Service has valued a $373 million portion of the pool that was retained by Cascade, according to the pre-sale report from the rating agency on 16 November. KeyBank, meanwhile, purchased the remaining unrated notes.

Moody’s rated the collateral pool as favorable credit quality, with its weighted average FICO score of 764.

Moody’s issued provisional ratings of “Aa3” for a tranche of $322.44 million offering an initial credit enhancement of 2.66%; “Baa3” on a $27.36 million tranche offering 1.75% CE; and “Ba2” on a $23.32 million coin providing 1% CE.

According to the pre-sale report, Cascade purchased about $3.2 billion in indirect auto loans from KeyBank in September. At the same time, CFMT 2021-AL1 issued securities backed by the acquired portfolio. KeyBank purchased $2.8 billion worth of unrated Class A senior notes and Cascade retained the Class B notes, according to the report.

In the agreement, the “supplements of class B and C tickets are amended and restated, and the original class B tickets will be reissued as class B tickets while the original class C tickets will be divided into three classes,” the pre-sale report said.

Cascade Funding, LP is the sponsor of the agreement. KeyBank, with over 60 years of experience originating and servicing consumer loans and mortgages, is listed as originator and manager of the transaction. Barclays Capital is designated lead manager.

The trust agent, Cascade Funding GP, is a subsidiary of Waterfall Asset Management of New York, a 16-year-old company that focuses on private equity investments, ABS and loans. Waterfall has about $9.8 billion in assets under management, according to its website. Its founders, Jack Ross and Tom Capasse are former members of Merrill Lynch’s ABS group.

Since 2007, Waterfall and its affiliates have contributed or issued guarantees for 103 debt securitizations, typically using securitization as a funding tool and retaining interest, according to the report.

Moody’s rated the collateral pool’s favorable credit quality, with its weighted average FICO score of 764. The pool has a high seasonality of 25 months, the agency said. The expected credit loss is 1%.

Fifty-nine percent of vehicles, which include sport utility vehicles, vans, crossovers, trucks and other motor vehicles, are used and 41% are new. The annual percentage rate of charge (APR) is 5.38%. Almost half, 48.5%, of the loans are in Ohio, New York and Pennsylvania. The average size of the remaining loans is $14,845 for 209,456 contracts.

Moody’s notes a challenge like the potential decline in used car prices, which have risen significantly due to shortages of semiconductor chips and other pandemic-related reasons, as the large volume of leased vehicles released at the end of their term could exert downward pressure.

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