Sign Of The Times: Santander Floats First "Deep" Subprime Deal Since Crisis

Tyler Durden's picture

Last week, we took an in-depth look at several of Santander Consumer’s subprime auto ABS deals. Santander is the largest subprime auto lender in the country with more than $15 billion in outstanding loans to underqualified buyers. Not surprisingly, the company also dominates the subprime auto ABS space accounting for a disproportionate share of YTD issuance. We noted that Santander’s first deal of 2015 (SDART 2015-1) carried an average FICO of 595, an average APR of 16.20%, and an average term of 70 months…

We went on to detail how Santander was set to float a new deal that looked even worse called DRIVE 2015-A. As the NY Times reports, the securitization “sold out in a matter of hours,” with the highest rated tranche yielding just 1%, proving beyond a shadow of a doubt that artificially suppressed interest rates are driving investors to take bigger and bigger risks as they desperately search for any semblance of yield. 

More, via NY Times

Delinquencies on auto loans have been rising, more Americans are losing their cars to repossession, and inquiries have begun into the subprime auto industry’s lending practices.


Nevertheless, Santander Consumer USA had little trouble last week finding buyers for its latest bond deal made up of auto loans to borrowers with deeply tarnished credit.


Many of the loans bundled into the $712 million deal went to borrowers with significantly lower credit scores than in many of Santander’s past bond deals.

Moody’s Investors Service expects losses as high as 27 percent on the bond, much larger than the 17 percent loss that the ratings firm had projected on a bond that Santander sold last year.


It’s easy to see the attraction for investors. Yields on the highest rated slice of the Santander bond were 1.02 percent, compared with the equivalent Treasury bond yield of 0.12 percent, according to Empirasign Strategies, a market data firm. In short, investors could earn about eight times as much yield, while ostensibly taking the same amount of risk.

As a reminder, the average FICO on this deal is just 552, according to Structured Finance News and nearly 13% of the loans backing the paper were made to borrowers with no FICO score at all. The truly remarkable thing about this particular deal is the degree to which it represents a complete round trip to the conditions that persisted pre-crisis: 

For Santander, the latest bond represented a shift.

Santander has always made loans to borrowers with very tarnished credit. But the lender has usually financed those loans through private deals or held them on its books, instead of tapping the public market, according to a person briefed on the matter.


The latest bond deal was the first time that it has publicly sold securities backed by auto loans with such low credit quality since the financial crisis. The timing of the deal was driven by two factors: investor demand and a desire by Santander to free up more capital.

Put simply: the company wants the loans off its balance sheet so it can make yet more bad loans which it will also move off its balance sheet in order to make still more, and on and on. This is precisely the mentality that existed when the mortgage securitization machine was set on overdrive and it represents a dangerous turn of events at a time when even the market for highly-rated corporate paper is facing a liquidity crisis. 

Delinquencies in the subprime space are already on the rise and in a pinch just about the last thing anyone is going to want to buy is paper backed by used car loans to unemployed borrowers with no credit. But as long as $700 million deals are going off without a hitch thanks to the global proliferation of NIRP, you can expect things to get far worse before they get better especially now that CNBC has unleashed the car-stock arbitrage on the few viewers the network has left.

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walküre's picture


Ignatius's picture

America, chewing and feasting on its own right arm.

We are one sorry nation.

KnuckleDragger-X's picture

Just floating down the shit river inviting everybody in for a swim. After all, what could possibly go wrong.....

Deathrips's picture

The 550 fico special.

No money down. 5000 cash BACK at closing.

1200 month repayment plan. 3%....unless you take 15000 cash back then its 2.75%

*fine print. We own your family for the next 200 years. But who cares!!!

Loans of the future.



JRobby's picture

We crave YIELD! We must have YIELD! All we care about is YIELD! Oh, and a bailout if we don't get what we crave and must have.

Sokhmate's picture

We crave cowbell. We must have cowbell. All we care about is cowbell.

Fish Gone Bad's picture

investor demand and a desire by Santander to free up more capital.

This is called, "making shit up". 

Anyone "investing" in this really needs to be fired.

grgy's picture

As soon as my student loans are forgiven, I'm going to sign a loan on a new F150 Limited!  God bless America!!

Kirk2NCC1701's picture

Dear Santander Loan Mgr,

I believe in Free Enterprise, and am a part-time blogger on ZH, but full time some days.

I've been at it for >2 years, make $0.00 from ZH, but have a 700+ score. What rate do I qualify for?

Al Tinfoil's picture

Finally, some Green Shoots!!!!

chilli sauce's picture
chilli sauce (not verified) walküre Mar 16, 2015 10:58 PM

my roomate's step-mother makes $79 hourly on the laptop . She has been fired for 10 months but last month her pay was $18694 just working on the laptop for a few hours. see here...

SethDealer's picture

wow, a FICO score of 552 is just pathetic. Hello sir, we checked and found that you have perfect credit... youve never paid anyone !!

KnuckleDragger-X's picture

There will be Obamacash pretty soon.....

Ward cleaver's picture

Like student loans, all will be forgiven via a
pen stroke from King O. Only requirement is
to show your D voter registration card and the loan
vanishes. The new normal.

El Vaquero's picture

A system that requires credit scores to the degree that ours does is pathetic to begin with.  We're all fucking sheep.  Baaaaaaa!

walküre's picture

Whatever happened to a solid handshake and a man's word?

El Vaquero's picture

That only works with local economies and people that you know.  Otherwise, it was a myth.  Most people will try to do right, but even in the mythical US 1950s, I guarantee that there were scam artists.  Don't get butthurt if you are dosing business with somebody who believes in "trust but verify."  That's just self preservation. 

booboo's picture

Congress and the head butler at the Whorehouse are no doubt working on the 2015 Wall Street bailout right now but are waiting for the legislation to be written by Black Rock and Yank Paulson.

resaci's picture

unicorns, toothfairys and 70 months @ 16.2%

BurningFuld's picture

Could be 100 months at 100% and it makes no difference they won't be paying it. You and I will.

Dr. Engali's picture

16.2% for 70 months for something that will lose most of it's value the moment they sign the deal. People are fucking stupid trained debt monkeys.

Miffed Microbiologist's picture

It explains all the Mercedes and BMWs driving around the bad areas of town. And I just thought that represented the lucrative side of drug dealing.


JRobby's picture

HEY! Those are "Certified Pre-Owned" Vehicles thank you!

Fish Gone Bad's picture

Over in my father's neighborhood they have yards that are a foot tall... and Certified Pre-Owned cars.... everywhere.  Kindof goes with all the syringes laying around.

Snoopy the Economist's picture

Do gangbangers/deadbeats really plan to make payments?

PresidentCamacho's picture

Once had an identity thief steal parents id to open a line of credit to buy a computer. The ID thief was actually making the payments and this credit line went unnoticed until he went to jail on unrelated charges.

So most of the time no, but there are always exceptions to the rule.



El Vaquero's picture

Yes, and the war on drugs is what makes their business model profitable. 

El Vaquero's picture

Gangbangers. And a few others, but gangbangers in this specific case. 

lost money's picture

Liquor is legal and so is bootlegging so that kind of messes up your war on drugs argument

oh right, you just want to legalize pot so yo can toke without looking out for the po po

Fish Gone Bad's picture

Liquor is legal.  Making home beer is legal, but making ethanol for anything other than fuel is illegal.  For those interested, the bureau of alcohol tobacco and firearms will issue a permit for FREE.  How honest one chooses to be is up to them. 

kowalli's picture

don't worry it's just worst since Lehman

Bell's 2 hearted's picture



ALL about the monthly nut


can't afford $xxx for 60 months?


how about


$xxx - y for 84 months?



Scoobywan's picture

And their existence makes mine all the more easier.

It's pretty easy to be the smartest guy in the room lately.

I look at it as cannon-fodder, and there is lots of it.

Fish Gone Bad's picture

It's pretty easy to be the smartest guy in the room lately.


Bell's 2 hearted's picture

and remember Fair Isaac (FICO) about a year ago made credit scores easier (eliminated health associated debt from scoring)


KnuckleDragger-X's picture

Yeah, death can be a real buzzkill....

corporatewhore's picture

if you go to the emergency room iirc you don't pay anything.  for this crowd that deletion probably was insignificant

Hohum's picture

You don't recall correctly.  Your ass will be billed for it.  That's why so many bankruptcies are related to medical costs.

williambanzai7's picture

So we have a PIIG bank making shitty loans to shitty borrowers in the US. And then reselling the shit to shiity deal buyers...

One way or another Bailout BOHICA...

KnuckleDragger-X's picture

This is why we have CDS, bigger fools will be found....

Anglo Hondo's picture

First ex-wife has Santander stock.  Bought with MY money!  I can't win for losing....

Fish Gone Bad's picture

Q: Why are divorces soooo expensive?

A: Because they are worth it.

DrData02's picture

Santander's ticker symbol used to be STD.  Truth in advertising (for a change).  They shouldn't have changed it.

Ignatius's picture

Even if that's not true, I'd wanna believe that it was true.

Al Tinfoil's picture

Is there some risk of contagion?

Callz d Ballz's picture

Deep sub-prime = no pulse loans

BurningFuld's picture

Are we talkin' Marianas Trench deep?