Harley-Davidson Financial Services has returned to the asset-backed securitization market with a $552.6 million transaction following a three-year hiatus, according to a pre-sale report from Moody’s Investors Service. The transaction will be HDFS’ first securitization since the captive issued a $301.8 million deal in 2016. The deal is expected to close June 26.
The securitization’s key credit strengths include “the collateral pool’s high-credit quality, financial strength and experience as a sponsor and servicer, as well as the build-up of enhancement as the pool amortizes,” according to the report. However, the deal faces challenges because of a decline in the resale values of Harley-Davidson motorcycles over the past five years, which was driven by a “continued influx of less expensive models from competitors and weaker demand,” the report noted.
Despite a three-year gap, the 2019 and 2016 transactions share several similarities. For instance, both have a weighted average FICO score above 750. Specifically, the 2019 deal’s average FICO is 757, while the 2016 deal had a 751 weighted FICO. There was a slight increase in loan terms, which grew to 71 months compared with 70 months in 2016.
While the 2019 transaction is “very similar” to the 2016 deal, it is “very different from the deals prior to that,” Robin Liu, assistant vice president at Moody’s Investors Service, told Powersports Finance.
Before taking a hiatus from the ABS market, HDFS made securitizations at least once per year and the average total portfolio amount was higher than the 2019 deal. For example, the 2015 offering was 23.7% larger than the current $552.6 million transaction.
Additionally, the 2019 deal is primarily focused on prime borrowers, whereas prior transaction went deeper into the credit spectrum.
“[Harley] makes a distinction in terms of cutting off the credit quality of the pool, whereas in 2015 and prior deals they include receivables further down the credit spectrum,” Daniela Jayesuria, vice president of Moody’s Investors Service, told PSF. “You can see that the 2016-A and the pools for the 2019-A deal are quite significantly higher in terms of FICO and consequently also differ in APR, which again points to the credit quality. They have a minimum FICO of 670 for the 2016-A and 2019-A deals, which makes it more focused on prime quality borrowers.”