February 29, 2024

HAROT 2024-1 to raise $1.5 billion from prime auto loans

American Honda Finance is preparing to issue at least $1.5 billion in asset-backed bonds that will be repaid from revenues on prime-quality retail installment loan contracts that it originated.

Honda Auto Receivables 2024-1, or HAROT 2024-1, is the program’s 91st such deal, according to Moody’s Investors Service, and analysts there say the principal balance could be upsized to as much as $2.1 billion. Regardless of the issuance amount, the capital structure will be the same: all class A notes issued through four tranches.

All of the notes have total initial hard the same credit enhancement level of 2.75%. Subordinated certificates provide 2.50% in enhancement to the initial pool. The notes will repay investors sequentially, and non-declining enhancement will grow as a percentage of the remaining assets as the pool amortizes.

Moody’s notes that the AHFC transactions are among the best performers in the sector. Over a lifetime, the rating agency also expects losses for deals issued from 2013 through 2022 to range from 0.35% to 0.75%. The sequential repayment structure sets up the trust for quick deleverage, and the rating agency said it considers the build-up of credit enhancement in the early months of amortization in its modeling.

In terms of the specific prime credit characteristics in HAROT 2024-1, the assets have a high weighted average (WA) FICO score of 768. In the current pool, some 77.4% for all three pools are composed of tier A loans. This is slightly higher than the 77.1% concentration of tier A loans in the 2023-4 transaction and 77.0% for the 2023-3 deal.

MUFG Securities America, Barclays Capital, BofA Securities and Deutsche Bank Securities are lead underwriters.

Moody’s assigns a P1 rating to the A1 tranche and AAA to the rest of the tranches, while S&P Global Ratings assigns A1+ to the A1 notes and AAA to the rest of the tranches. Classes A1, A2, A3 and A4 have legal final maturity dates of Feb. 18, 2025, Sept. 18, 2026, Aug. 15, 2028 and May 15, 2030, the rating agencies said.

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