Typical Auto Loan Structures

We show a typical auto loan structure in Exhibit 2.10. The seller/servicer originates a pool of auto loans and sells the receivables, the rights to receive proceeds, and the lien on the vehicles into a bankruptcy-remote grantor or

EXHIBIT 2.10 Typical Auto Loan ABS Structure

EXHIBIT 2.10 Typical Auto Loan ABS Structure

Loan Structures
Source: Salomon Smith Barney.

owner trust. The sale is a true sale of assets, meaning that the conditions for sale treatment have been met.

The principal and interest is passed along to investors. Most auto deals have a cash reserve account, with the initial deposit provided by the seller. The cash reserve account provides additional credit enhancement, and the seller pledges the account to the trust. The structure generates excess spread and pays it into the cash reserve account, if required. Excess spread is cash flow that remains after the payment of all deal expenses. Deal expenses include the coupon, servicing and trustee fees and the absorption of losses.

Excess spread may be required to fully fund the required reserve account amount, provide additional credit enhancement if the pool performance deterioration trips any triggers, or else it may be paid out to the seller.

Borrowing Basics

Borrowing Basics

Some small business persons cannot understand why a lending institution refused to lend them money. Others have no trouble getting funds, but they are surprised to find strings attached to their loans.

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Responses

  • DECLAN MOORE
    Who structures car loans?
    7 years ago

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