First Investors Auto Owner Trust

Transcription

1 Presale: First Investors Auto Owner Trust This presale report is based on information as of Feb. 9, The ratings shown are preliminary. This report does not constitute a recommendation to buy, hold, or sell securities. Subsequent information may result in the assignment of final ratings that differ from the preliminary ratings. Preliminary Ratings Class Preliminary rating(i) Type Interest rate Preliminary amount (mil. $)(ii) Legal final maturity date A-1 AAA (sf) Senior Fixed April 15, 2021 A-2 AAA (sf) Senior Fixed March 15, 2022 B AA (sf) Subordinate Fixed April 17, 2023 C A (sf) Subordinate Fixed April 17, 2023 D BBB (sf) Subordinate Fixed May 15, 2023 E BB- (sf) Subordinate Fixed 9.00 Nov. 15, 2023 (i)the rating on each class of securities is preliminary and subject to change at any time. (ii)the actual size of the tranches will be determined on the pricing date. Profile Expected closing date Feb. 23, Collateral Subprime auto loan receivables. Originator/seller/sponsor First Investors Financial Services Inc. Depositor First Investors Auto Funding Corp. Servicer First Investors Servicing Corp. Back-up servicer/custodian/indenture trustee Wells Fargo Bank N.A. (AA-/Stable/A-1+). Owner trustee Wells Fargo Delaware Trust Co. N.A. Underwriters Credit Suisse Securities (USA) LLC. Primary Credit Analyst: Rahel Avigdor, New York (1) ; rahel.avigdor@spglobal.com Secondary Contact: Elizabeth T Fitzpatrick, New York (1) ; elizabeth.fitzpatrick@spglobal.com See complete contact list on last page(s) FEBRUARY 9,

2 Credit Enhancement Summary Preliminary rating FIAOT FIAOT FIAOT FIAOT FIAOT FIAOT Class A AAA (sf) AAA (sf) AAA (sf) AAA (sf) AAA (sf) AAA (sf) Class B AA (sf) AA (sf) AA (sf) AA (sf) AA (sf) AA (sf) Class C A (sf) A (sf) A (sf) A (sf) A (sf) A (sf) Class D BBB (sf) BBB (sf) BBB (sf) BBB (sf) BBB (sf) BBB (sf) Class E BB- (sf) BB (sf) BB (sf) BB (sf) N/A N/A Subordination (% of the initial receivables)(i) Class A Class B Class C Class D Class E N/A N/A Overcollateralization (% of the initial receivables) Initial Target(ii) Floor Reserve fund (% of the initial receivables) Initial Target Floor Total initial hard credit enhancement (% of the initial receivables) Class A Class B Class C Class D Class E N/A N/A Estimated excess spread per year (%)(iii) (i)principal will be paid sequentially on the preliminary rated notes. (ii)the overcollateralization target is a percentage of the current receivables balance. (iii)includes the 2.04% servicing fees. Series , , , and reflect estimated excess spread after pricing. FIAOT--First Investors Auto Owner Trust. Rationale The preliminary ratings assigned to First Investors Auto Owner Trust 's (FIAOT 's) $225 million asset-backed notes reflect: The availability of approximately 35.8%, 30.8%, 24.0%, 18.6%, and 15.2% credit support for the class A, B, C, D, and E notes, respectively, based on stressed cash flow scenarios (including excess spread). These credit support levels provide approximately 3.50x, 3.00x, 2.30x, 1.75x, and 1.40x coverage of our 9.75%-10.25% expected cumulative net loss (CNL) range for the class A, B, C, D, and E notes, respectively (see the Cash Flow Modeling Assumptions And FEBRUARY 9,

3 Results section). The timely interest and principal payments made under stressed cash flow modeling scenarios that are appropriate for the preliminary ratings. Our expectation that under a moderate ('BBB') stress scenario, the ratings on the class A and B notes would not drop by more than one rating category, and the ratings on the class C, D, and E notes would not drop by more than two rating categories within the first year. These potential rating movements are consistent with our rating stability criteria (see "Methodology: Credit Stability Criteria," published May 3, 2010). The collateral characteristics of the pool being securitized with direct loans accounting for approximately 22% of the cut-off pool. These loans historically have lower losses than the indirect-originated loans. Prefunding will be used in this transaction in the amount of $25.0 million, approximately 11% of the pool. The subsequent receivables, which amount to approximately 17%-23% of the 2016 company's quarterly origination volume, are expected to be transferred into the trust within three months from the closing date. First Investors Financial Services Inc.'s (First Investors') 26-year history of originating and underwriting auto loans, and 15-year history of self-servicing auto loans, as well as its track record of securitizing auto loans since First Investors' 13 years of origination static pool data, segmented by direct and indirect loans. Wells Fargo Bank N.A.'s experience as the committed back-up servicer. The transaction's sequential payment structure, which builds credit enhancement based on a percentage of receivables as the pool amortizes. Changes From FIAOT The major structural and credit enhancement changes from the series transaction include: Initial total hard credit enhancement at closing for classes A and B increased by 1.15% and 0.22% respectively; for classes C and D it decreased by 0.38% and 0.48% respectively and remained flat for class E. Subordination increased for classes A and B to 25.15% and 19.35% from 24.00% and 19.13% respectively; subordination decreased for classes C and D to 10.75% and 4.00%, down from 11.13% and 4.48%, respectively. Excess spread increased to approximately 8.45% per year from approximately 8.16% (pre-pricing). While initial and floor overcollateralization (O/C) remain unchanged at 0.00% and at 0.50% of the initial collateral respectively, the target O/C decreased to 4.80% of the current pool balance from 5.15%. The transaction includes a three-month prefunding period. The collateral composition (as of the initial cut-off date) changes from the series transaction (final pool) include: The weighted average loan-to-value (LTV) ratio increased to % from %. The weighted average FICO score remained stable at 587. This is the highest weighted average FICO observed since the transaction. The percentage of loans originated under the direct program increased to 21.53% from 19.32%. The percentage of long-term loans (those with an original term of months) in the pool increased slightly to 92.45% from 92.21%. The percentage of new vehicles increased to 28.31% from 26.77%. The weighted average seasoning increased to 2.60 months from 1.92 months. While we believe that the credit quality of the collateral in the pool is comparable to the pool, we continue to observe deteriorating performance on a managed portfolio basis and in First Investor's securitizations. This, coupled with our forward-looking view of the economy--namely our expectation for lower used vehicle values FEBRUARY 9,

4 resulting in weaker recovery rates--led us to increase our expected CNL range for this transaction. As a result, we increased our expected loss range to 9.75%-10.25% from 9.00%-9.50% (see the S&P Global Ratings' Expected Loss section below). In addition, First Investors does not net the cost of repossession fees from liquidation proceeds for its static pool, managed portfolio, and securitization performance. Key Ratings Considerations Based on our review of First Investors' operations, we considered the following factors in rating this transaction: Experienced management: The senior management team's average tenure is approximately 16 years with the company, and the middle management team's average tenure is more than 12 years. Furthermore, management has navigated the company successfully through severe industry and economic cycles (including , , and ). Profitable operations: The company's net income for the fiscal year ended April 30, 2016, was down year over year, but the company continues to be profitable. Disciplined growth strategy: The company's owned portfolio decreased by 1% as of Oct. 31, 2016, to $1.16 billion from the prior year. The current active dealer base is approximately 2,081. Verifications: Per management, First Investors conducts verification on each obligor's income, employment, residence, and insurance before funding. Diversified business model: First Investors' business model encompasses indirect and direct originations, various alliance channels, portfolio acquisitions, and third-party servicing, which provides the company with a unique perspective on subprime consumers and with a diversified mix of business that has helped it weather difficult economic periods. Focus: First Investors focuses on a more narrow credit spectrum than many larger competitors in subprime auto lending. Transaction And Legal Overview FIAOT is First Investors' first securitization in It completed two transactions in 2016 and 2015 each, three transactions in 2014 and 2013 each, and two transactions in 2012 and 2011 each. The company also completed five bond-insured auto asset-backed securities (ABS) transactions in First Investors is the receivables originator. It is an independent consumer finance company that purchases dealer-originated auto loans from selling new and used vehicles (indirect auto loans) and makes auto loans directly to consumers to refinance an existing auto loan (direct auto loans). The company will contribute those contracts to First Investors Auto Funding Corp. (the depositor), a wholly owned, bankruptcy-remote, special-purpose subsidiary. The transaction is structured as a true sale of the receivables from First Investors, the originator/seller, to First Investors Auto Funding Corp., the depositor (see chart 1). First Investors Auto Funding Corp. will transfer the receivables to FIAOT , a newly formed special-purpose Delaware statutory trust that serves as the issuer and will pledge its interest in the receivables and its security interests in the vehicles to the indenture trustee for the noteholders' benefit. FEBRUARY 9,

5 In rating this transaction, S&P Global Ratings will review the legal matters that it believes are relevant to its analysis. Transaction Structure The series transaction will employ a sequential principal payment structure among the class A, B, C, D, and E notes. The class A notes will be paid in full before the class B notes receive principal distributions; the class B notes will be paid in full before the class C notes receive principal distributions; the class C notes will be paid in full before the class D notes receive principal distributions; and the class D notes will be paid in full before the class E notes receive principal distributions. The sequential-pay mechanism builds credit enhancement, on a percentage basis, for the rated notes as the pool amortizes. The transaction's structure incorporates a 1.50% nondeclining reserve account. It also has an initial 0.00% O/C amount that will build to a target of 4.80% of the current pool balance subject to a floor of 0.50% of the initial pool balance. We expect the pool to generate approximately 8.45% excess spread per year. FEBRUARY 9,

6 The prefunding period will last three months. The prefunding criteria characteristics include an original maturity of no more than 72 months, a weighted average annual percentage rate of at least 13.50%, and a minimum weighted average FICO of 584. At least 21.00% of the subsequent receivables will be originated through the direct program. Payment Structure Payment distributions The class A, B, C, D, and E notes' issuance amounts will total $ million, and the notes will pay a fixed interest rate. Interest and principal are scheduled to be paid to the preliminary rated notes on each monthly payment date, which will occur on the 15th of each month or the next business day, beginning March 15, On each payment date, distributions will be made from available funds according to the payment priority outlined in table 1. In addition, the funds in the reserve account will be available to cover fees, interest shortfalls, parity principal payments, and principal payments that are due on the notes' final maturity date. Table 1 Payment Waterfall Priority Payment 1 To the servicer, the annual 2.00% servicing fee for the preceding month plus any overdue monthly servicing fees for previous months. 2 To the back-up servicer, indenture trustee, custodian, and owner trustee (in its individual capacity), respectively, any unpaid fees and expenses (including attorneys' fees and transition expenses), subject to certain limitations set forth in the transaction documents. 3 To the note payment account, for distribution to the class A noteholders (pari passu based on the respective amounts due to each of the class A notes under this item), the class A monthly interest for that payment date, any overdue class A monthly interest for previous payment dates, and interest on any overdue class A monthly interest payable at the interest rate applicable to each class A note. 4 To the note payment account, for distribution to the noteholders, the amount necessary to reduce the class A notes' principal balance to the pool balance (and prefunding account). 5 To the note payment account, the amount necessary to pay the remaining principal balance of any of the class A notes on its final maturity date. 6 To the note payment account, for distribution to the class B noteholders, the class B monthly interest for that payment date, any overdue class B monthly interest for previous payment dates, and interest on any overdue class B monthly interest payable at the interest rate applicable to the class B notes. 7 To the note payment account, for distribution to the noteholders, the amount necessary after giving effect to any payments made under items 4 and 5 above to reduce the class A and B notes' combined principal balance to the pool balance (and prefunding account). 8 To the note payment account, the amount necessary to pay the class B notes' remaining principal balance on their final maturity date. 9 To the note payment account, for distribution to the class C noteholders, the class C monthly interest for that payment date, any overdue class C monthly interest for previous payment dates, and interest on any overdue class C monthly interest payable at the interest rate applicable to the class C notes. 10 To the note payment account, for distribution to the noteholders, the amount necessary after giving effect to any payments made under items 4, 5, 7, and 8 above to reduce the class A, B, and C notes' combined principal balance to the pool balance (and prefunding account). 11 To the note payment account, the amount necessary to pay the class C notes' remaining principal balance on their final maturity date. 12 To the note payment account, for distribution to the class D noteholders, the class D monthly interest for that payment date, any overdue class D monthly interest for previous payment dates, and interest on any overdue class D monthly interest payable at the interest rate applicable to the class D notes. 13 To the note payment account, for distribution to the noteholders, the amount necessary after giving effect to any payments made under items 4, 5, 7, 8, 10, and 11 above to reduce the class A, B, C, and D notes' combined principal balance to the pool balance (and prefunding account). FEBRUARY 9,

7 Table 1 Payment Waterfall (cont.) Priority Payment 14 To the note payment account, the amount necessary to pay the class D notes' remaining principal balance on their final maturity date. 15 To the note payment account, for distribution to the class E noteholders, the class E monthly interest for that payment date, any overdue class E monthly interest for previous payment dates, and interest on any overdue class E monthly interest payable at the interest rate applicable to the class E notes. 16 To the note payment account, for distribution to the noteholders, the amount necessary after giving effect to any payments made under items 4, 5, 7, 8, 10, 11, 13, and 14 above to reduce the class A, B, C, D, and E notes' combined principal balance to the pool balance (and prefunding account). 17 To the note payment account, the amount necessary to pay the class E notes' remaining principal balance on their final maturity date. 18 To the reserve account, the amount required to increase the amount on deposit in the reserve account to the required reserve account amount, if any, for that payment date. 19 To the note payment account for distribution to the noteholders, the accelerated principal amount to build overcollateralization to its target level. 20 To the owner trustee (in its individual capacity), indenture trustee, custodian, and back-up servicer, any other amounts due under the transaction documents. 21 To the trust for disbursement according to the trust agreement, any remaining available funds. Events Of Default Any one of the following events will constitute an event of default: Failure to make any required interest payment on the controlling class of notes, which remains uncured for five or more business days; Failure to make any required principal payment on any class of notes on its final scheduled payment date; Failure to observe or perform any material covenant or agreement in the transaction documents, which is uncured for 30 days; Any issuer representation or warranty that proves to have been materially incorrect, remaining uncured for 30 days; and The trust's bankruptcy, insolvency, receivership, or liquidation. Payment distributions post event of default On each payment date following an event of default (other than those relating to a covenant, representation, or warranty breach) after paying certain amounts to the indenture trustee, custodian, owner trustee, servicer, and back-up servicer, available funds will be distributed according to the payment priority outlined in table 2. Table 2 Payment Waterfall Priority Payment 1 Pari passu interest to the class A noteholders. 2 The class A-1 and class A-2 note principal to the class A-1 and A-2 pari passu noteholders until the class A-1 and A-2 note balances have been reduced to zero. 3 The class B note interest to the class B noteholders. 4 The class B note principal to the class B noteholders until the class B note balance has been reduced to zero. 5 The class C note interest to the class C noteholders. FEBRUARY 9,

8 Table 2 Payment Waterfall (cont.) Priority Payment 6 The class C note principal to the class C noteholders until the class C note balance has been reduced to zero. 7 The class D note interest to the class D noteholders. 8 The class D note principal to the class D noteholders until the class D note balance has been reduced to zero. 9 The class E note interest to the class E noteholders. 10 The class E note principal to the class E noteholders until the class E note balance has been reduced to zero. 11 To the trust for disbursement according to the trust agreement, any remaining available funds. On each payment date following an event of default relating to a breach of a covenant, representation, or warranty under the indenture and the notes' subsequent acceleration after paying certain amounts to the indenture trustee, custodian, owner trustee, servicer, and back-up servicer, available funds will be distributed according to the payment priority outlined in table 3. Table 3 Payment Waterfall Priority Payment 1 Pari passu interest to the class A noteholders. 2 Any amount necessary for class A note parity. 3 Any amount necessary for class A legal final maturity 4 The class B note interest to the class B noteholders. 5 Any amount necessary for class B note parity. 6 Any amount necessary for class B legal final maturity. 7 The class C note interest to the class C noteholders. 8 Any amount necessary for class C note parity. 9 Any amount necessary for class C legal final maturity. 10 The class D note interest to the class D noteholders. 11 Any amount necessary for class D note parity. 12 Any amount necessary for class D legal final maturity. 13 The class E note interest to the class E noteholders. 14 Any amount necessary for class E note parity. 15 Any amount necessary for class E legal final maturity. 16 Any amount necessary to satisfy the reserve requirement. 17 Principal to class A-1 until paid in full, then to class A-2 until paid in full, then to class B until paid in full, then to class C until paid in full, and then to class D until paid in full (full turbo to the noteholders). 18 Amounts, if any due to the owner trustee (in its individual capacity), indenture trustee, custodian, servicer and back-up servicer, due under the transaction documents and not paid previously. 19 Any remaining available funds to the depositor account. Managed Portfolio Performance First Investors has steadily grown its portfolio since the recession; it reached $1.10 billion as of October Its managed portfolio has remained relatively stable since. As of Oct. 31, 2016, its managed portfolio was $1.16 billion, a FEBRUARY 9,

9 1.2% decrease year over year. We reviewed the trends in some of the key pool characteristics, including payment-to-income, debt-to-income, and LTV ratio, for the past 10 years, and we believe that First Investors has not deviated significantly from its historical patterns to originate more loans. In addition, as of mid-december 2014, First Investors implemented tighter underwriting guidelines including reducing maximum LTV ratios and expanded verifications. While total 30-plus-day delinquencies increased to 5.73% as of Oct. 31, 2016, from 4.93% as of Oct. 31, 2015, the increase was mostly days delinquencies. Total 61-plus-day delinquencies have remained stable at 1.88% as of Oct. 30, 2016, compared to 1.87% as of Oct. 30, Extensions have been comparable with past years. Net losses as a percent of the average principal balance outstanding for the six months ended Oct. 31, 2016, increased to 4.86% (annualized) from 4.43% a year earlier. Even though this is higher than the net loss percentages reported for fiscal years ended April , it remains lower than the levels. Management said weaker performance has been driven by a softening in recoveries. Table 4 Owned Portfolio As of Oct. 31 As of April 30 Total contract portfolio (mil. $) Delinquencies (%)(i) , , , , days days plus days Total 30-plus days Total 60-plus days Credit loss Average principal balance outstanding (mil. $) Six months ended Oct. 31 Fiscal year ended April , , , , Net losses (mil. $) 27,810 25, Net losses as a % of average principal balance outstanding (i)the delinquency period is based on the number of days payments are contractually past due. Pool Analysis The series initial cut-off pool consists of $200 million in First Investors-originated automobile loans as of the cut-off date, Jan. 31, Unlike , the series transaction has a prefunding period of $25 million, which is expected to be transferred into the trust within three months from the closing date. Table 5 shows the collateral FEBRUARY 9,

10 characteristics of First Investors 's initial pool, as well as those of First Investors' previous initial pools. Table 5 Collateral Comparison FIAOT Collateral cut-off date Dec. 31, 2016 Aug. 31, 2016 Jan. 31, 2016 July 31, 2015 (i) Mar. 31, 2015 (i) Oct. 22, 2014 (i) Total collateral balance ($) 200,000, ,000, ,008, ,419, ,001, ,147,125 No. of receivables 9,971 11,052 7,851 7,860 8,905 8,438 Avg. principal balance ($) 20,058 20,811 21,654 21,427 21,337 21,468 Prefunding (%) Weighted average APR (%) Weighted average original term (mos.) Weighted average remaining (mos.) Seasoning (mos.) Weighted average FICO Weighted average LTV (%) New (%) Used (%) Original term (%) Less than or equal to 60 months months months Indirect loan (%) Direct loan (%) State concentrations (%) TX=12.94 TX=13.35 TX=14.26 TX=13.92 TX=14.66 TX=16.93 CA=9.77 CA=10.36 CA=9.59 CA=10.42 CA=11.41 CA=12.25 GA=8.82 GA=8.44 NC=7.73 NC=7.99 NC=8.27 FL=8.91 OH=6.21 NC=6.99 GA=7.56 GA=7.37 FL=8.08 GA=7.04 NC=6.39 FL=6.79 FL=7.42 FL=7.11 GA=7.08 NC=6.97 Initial expected CNL (%) Revised expected CNL (%) N/A N/A N/A Paid-off CNL N/A N/A N/A N/A N/A N/A FIAOT Collateral cut-off date July 31, 2014 March 31, 2014 Oct. 31, 2013 May 31, 2013 Dec. 31, 2012 Total collateral balance ($) 225,000, ,000, ,009, ,000, ,000,000 No. of receivables 10,864 10,605 12,329 9,697 9,156 Avg. principal balance ($) 20,711 20,745 20,278 20,625 20,424 Prefunding (%) FEBRUARY 9,

11 Table 5 Collateral Comparison (cont.) Weighted average APR (%) Weighted average original term (mos.) Weighted average remaining (mos.) Seasoning (mos.) Weighted average FICO Weighted average LTV (%) New (%) Used (%) Original term (%) Less than or equal to 60 months months months Indirect loan (%) Direct loan (%) State concentrations (%) TX=18.66 TX=18.04 TX=17.99 TX=18.10 TX=19.41 CA=12.23 CA=11.89 CA=9.97 CA=9.60 CA=9.19 FL=9.13 FL=8.99 FL=8.33 GA=8.07 GA=8.19 NC=6.59 GA=7.29 GA=7.97 FL=7.89 FL=8.05 GA=6.51 NC=7.05 OH=7.50 NC=7.02 OH=6.53 Initial expected CNL (%) Revised expected CNL (%) Paid-off CNL N/A N/A N/A N/A N/A (i)initial cut-off pool. Does not include prefunding. All percentages are of the initial receivables balance. FIAOT--First Investors Auto Owner Trust. APR--Annual percentage rate. LTV--Loan to value. CNL--Cumulative net loss. N/A--Not applicable. Securitization Performance And Surveillance Paid-off transactions First Investors securitized five bond-insured transactions in , all of which have paid off with CNLs ranging from 4.87%-9.43%. The non-bond-insured series , First Investors' first securitization transaction after the recession, was called in April 2014 at a 6.23% CNL and 14.30% pool factor. This pool had 12 months of seasoning at inception and approximately 45.00% in direct loans. First Investors' direct program has historically experienced lower losses than its indirect lending program. Additionally, the series , , and pools were paid off at approximately 8.11%, 8.14%, and 9.54% CNL, respectively. Outstanding transactions First Investors has 10 S&P Global Ratings-rated outstanding public FIAOT ABS transactions, which were issued from (see table 6). FEBRUARY 9,

12 Table 6 Collateral Performance (%) As of the January 2017 distribution date Series Month Pool factor CNL 60-plus DQ Initial lifetime CNL exp. Revised lifetime CNL exp (i) (i) (i) (i) (ii) (i) (ii) (ii) N/A N/A (i)revised as of May (ii)revised as of January CNL--Cumulative net loss. N/A--Not applicable. DQ--Delinquent. While these transactions are generally performing within a tight credit loss range, most of them are experiencing higher CNLs than we originally expected, particularly the 2014 transactions. As a result, we revised upwards our expected CNLs in May 2016 and January 2017 (see chart 2, table 6, and "Sixteen First Investors Auto Owner Trust Ratings Raised; 23 Ratings Affirmed," published May 12, 2016). At this time, we expect CNLs to be 8.9%-10.25% for the 2013 pools, 10.25%-11.25% for the 2014 pools, and 9.50%-10.25% for the 2015 pools. FEBRUARY 9,

13 Chart 2 In analyzing the securitization performance, we also examined cumulative gross losses and cumulative recoveries. The 2013 transactions have experienced strong recoveries (40%-50%), which we attribute to the strong used vehicle market, as well as consistent and conservative underwriting. Recent transactions starting in 2014 are exhibiting slightly lower recovery rates, which is contributing to the higher CNLs on these pools. In addition, the 2014 transactions had higher LTVs, and since then First Investors has been strategically reducing maximum LTV ratios. FEBRUARY 9,

14 Chart 3 Despite losses trending higher than our initial expectations, since each transaction closed, the credit support for each class has increased as a percentage of the amortizing pool balances and is, in our view, adequate to support the current ratings (see table 7). We will continue to monitor these transactions' performances to determine if they remain consistent with the assigned ratings or if we believe a rating action is appropriate. Table 7 Hard Credit Support (%) As of the December 2016 distribution date Series Class Total hard credit support at issuance(i) Current total hard credit support (% of current) C D B C D FEBRUARY 9,

15 Table 7 Hard Credit Support (%) (cont.) As of the December 2016 distribution date Series Class Total hard credit support at issuance(i) Current total hard credit support (% of current) A B C D A B C D A B C D A B C D A B C D A B C D E A B C D E A B C D E (i)consists of a reserve account and overcollateralization, as well as subordination for classes A, B, and C (and class D for the , , and series) and excludes excess spread that can also provide additional enhancement. FEBRUARY 9,

16 S&P Global Ratings' Expected Loss: 9.75%-10.25% To derive the base-case loss level for the series transaction, we analyzed First Investors' securitization performance (see table 6), origination static pool data, deal-level collateral characteristics and the tighter underwriting guidelines implemented by the company in late First Investors provided quarterly origination static pool net loss data broken out by program type (direct versus indirect) and LTV ratios or credit tiers, since fourth-quarter We developed expected net loss projections for each cohort and then weighted these projections by their respective concentrations in the series pool to derive a weighted average CNL range. While performance improved for the vintages, losses have started to trend slightly higher for most segments beginning in the first quarter of In mid-december 2014 First Investors implemented tighter underwriting guidelines, including reducing maximum LTV ratios and expanded verifications. While early, we believe the 2015 origination vintages are benefitting from these actions (see chart 4). Chart 4 Based on First Investors' performance data, direct loans have historically experienced lower losses than indirect loans, FEBRUARY 9,

17 despite their higher LTV ratios (see table 8). On average, direct loans are refinanced six months after the obligor's original purchase date. We attribute the lower losses to this additional seasoning because it allows the originator to assess early stage payment performance and minimizes the fraud or misrepresentation risk surrounding the obligor or original sale process. The percentage of direct loans in this pool is slightly higher at 22% compared to the pool but is below the average concentration in the outstanding securitization pools (approximately 36% on average for the 2014, 2014, and 2015 securitizations), which management attributes to the current competitive rate environment. Table 8 Loan Performance Cohort Pool composition (%) Loss proxy (%) Weighted average loss projection per cohort(%) Direct <130% LTV Direct >=130% LTV Indirect low risk credit tiers Indirect high risk credit tiers Weighted average loss projections for the pool (%) LTV--Loan to value ratio. We considered the series pool's credit quality compared with previous pools, origination static pool analysis, managed pool performance, CNL projections for First Investors' outstanding pools, the current macroeconomic conditions, and our forward-looking view of the economy--namely our expectation for lower used vehicle values resulting in weaker recovery rates. As a result, we expect the series pool's CNL to be between 9.75%-10.25%. In addition, First Investors does not net the cost of repossession fees from liquidation proceeds for its static pool, managed portfolio, and securitization performance. Although First Investors is reimbursed for these fees as part of its servicing fees, if servicing were to be transferred, the successor servicer would be entitled, per the transaction documents, to net repossession fees from liquidation proceeds thus reducing recoveries and increasing net losses. Our CNL range for series accounts for these expenses Cash Flow Modeling Assumptions And Results We used the following assumptions to model the series transaction to simulate stress scenarios that we believe are appropriate for the preliminary ratings (see table 9). Table 9 Cash Flow Assumptions/Results Class A B C D E Front-loaded loss curve Scenario (preliminary rating) AAA (sf) AA (sf) A (sf) BBB (sf) BB- (sf) Net loss timing (12/24/36/48) (%) ABS voluntary prepayments (%) Recoveries (%) Recovery lag (mos.) FEBRUARY 9,

18 Table 9 Cash Flow Assumptions/Results (cont.) Class A B C D E Servicing fee (%) Approximate cumulative net loss break-even level (%)(i) Loss curve Class A B C D E Back-loaded loss curve Scenario (preliminary rating) AAA (sf) AA (sf) A (sf) BBB (sf) BB- (sf) Net loss timing (12/24/36/48) (%) ABS voluntary prepayments (%) Recoveries (%) Recovery lag (mos.) Servicing fee (%) Approximate cumulative net loss break-even level (%)(i) (i)the maximum cumulative net losses on the pool that the transaction can withstand without a payment default on the relevant classes of notes. ABS--Absolute prepayment speed. We ran cash flow scenarios using the assumptions shown in table 9. After applying those stresses in our internal cash flow runs, the break-even results show that each class is enhanced to the degree necessary to withstand a stressed net loss level that is consistent with our preliminary ratings. Scenario Analysis We used the following assumptions to run a sensitivity analysis to see how losses that are higher than we currently expect could affect the preliminary ratings on the notes (see table 10). Table 10 Scenario Analysis Summary -Moderate Loss Scenario Loss level (multiple) 1.75x base case. Cumulative net loss (%) Cumulative net loss timing (12/24/36/48) (%) 30/60/85/100. ABS voluntary prepayments (%) Recoveries (%) Recovery lag (mos.) 4. Servicing fee (%) Coverage multiple Class A Class B Class C Class D Class E ABS--Absolute prepayment speed. Initially 2.2x and reaches 2.8x in month 12, growing thereafter. Initially 1.9x and reaches 2.3x in month 12, growing thereafter. Initially 1.4x and reaches 1.6x in month 12, growing thereafter. Initially 1.0x, and reaches 1.1x in month 12, growing thereafter. Initially 0.79x, decreases to 0.76x in month 12 months and decreases thereafter. Class E defaults at month 74 with 42% of principal repaid. FEBRUARY 9,

19 Chart 5 Moderate loss scenario: 17.50% (1.75x cumulative net loss results) In our view, under the 1.75x stress scenario, all else being equal, we expect ratings on the class A and B notes to remain within one rating category of our preliminary ratings and ratings on the class C, D, and E notes to remain within two rating categories of our preliminary ratings during the first year. These potential rating movements are consistent with our ratings stability criteria that describe the outer bound of credit deterioration as a one-category downgrade within the first year for 'AAA' and 'AA' rated securities and a two-category downgrade within the first year for 'A' through 'BB' rated securities under moderate stress conditions (see "Methodology: Credit Stability Criteria," published May 3, 2010). Legal Final Maturity We tested the legal final maturity dates on the preliminary rated notes against our criteria. In a zero-loss, zero-prepayment scenario, the tranches were each fully amortized before their respective legal final maturity dates. To accommodate for extensions on the receivables, the legal final maturity date of the longest-dated security (class E) was set by adding six months to the tenor of the longest receivable in the pool plus three months for the prefunding period. Furthermore, in the break-even scenario for each respective rating level, we confirmed that there was sufficient credit FEBRUARY 9,

20 enhancement to both cover losses and repay the related notes in full by their legal final maturity. First Investors First Investors was founded in 1989 by the current president and CEO, Tommy A. Moore Jr. Together with its wholly owned subsidiaries, First Investors is a consumer finance company engaged in originating and holding investment retail installment sales contracts and promissory notes, as well as receivables secured by new and used automobiles and light trucks arising from vehicle sales by manufacturer-authorized franchised dealers (indirect loans) or through a refinancing transaction with the vehicle owner (direct loans). First Investors specializes in lending to consumers with impaired credit profiles. In addition, it purchases receivables in portfolio acquisitions or from other third-party originators and performs third-party servicing and collection activities for unaffiliated parties. First Investors operates in 47 states as of Dec. 31, First Investors was acquired by FIFS Holdings Corp (FIFSHC) on Oct. 31, 2012, and is currently its indirect, wholly owned subsidiary and principal operating entity. FIFSHC is a holding company organized under Delaware law, headquartered in New York, and controlled by Aquiline Capital Partners LLC, a private equity firm focused on financial services. On Aug. 20, 2014, the Consumer Finance Protection Bureau announced it had concluded its investigation of First Investors. The company was fined $2.75 million in civil penalties regarding data furnished to the consumer reporting agencies. In addition, per the consent order, the company has agreed to address certain issues, such as remedying errors on consumer credit reports and establishing new safeguards. Related Criteria And Research Related Criteria Criteria - Structured Finance - General: Ratings Above The Sovereign - Structured Finance: Methodology And Assumptions, Aug. 8, 2016 Criteria - Structured Finance - General: Methodology: Criteria For Global Structured Finance Transactions Subject To A Change In Payment Priorities Or Sale Of Collateral Upon A Nonmonetary EOD, March 2, 2015 Criteria - Structured Finance - General: Criteria Methodology Applied To Fees, Expenses, And Indemnifications, July 12, 2012 General Criteria: Global Investment Criteria For Temporary Investments In Transaction Accounts, May 31, 2012 Criteria - Structured Finance - ABS: General Methodology And Assumptions For Rating U.S. Auto Loan Securitizations, Jan. 11, 2011 Criteria - Structured Finance - General: Standard & Poor's Revises Criteria Methodology For Servicer Risk Assessment, May 28, 2009 Legal Criteria: Legal Criteria For U.S. Structured Finance Transactions: Special-Purpose Entities, Oct. 1, 2006 Legal Criteria: Legal Criteria For U.S. Structured Finance Transactions: Appendix III: Revised UCC Article 9 Criteria, Oct. 1, 2006 Legal Criteria: Legal Criteria For U.S. Structured Finance Transactions: Criteria Related To Asset-Backed Securities, Oct. 1, 2006 Legal Criteria: Legal Criteria For U.S. Structured Finance Transactions: Securitizations By Code Transferors, Oct. 1, FEBRUARY 9,

21 2006 Legal Criteria: Legal Criteria For U.S. Structured Finance Transactions: Select Issues Criteria, Oct. 1, 2006 Related Research Global Structured Finance Scenario And Sensitivity Analysis 2016: The Effects Of The Top Five Macroeconomic Factors, Dec. 16, 2016 Sixteen First Investors Auto Owner Trust Ratings Raised; 23 Ratings Affirmed, May 12, 2016 In addition to the criteria specific to this type of security (listed above), the following criteria articles, which are generally applicable to all ratings, may have affected this rating action: "Post-Default Ratings Methodology: When Does Standard & Poor's Raise A Rating From 'D' Or 'SD'?," March 23, 2015; "Global Framework For Assessing Operational Risk In Structured Finance Transactions," Oct. 9, 2014; "Methodology: Timeliness of Payments: Grace Periods, Guarantees, And Use of 'D' And 'SD' Ratings," Oct. 24, 2013; "Counterparty Risk Framework Methodology And Assumptions," June 25, 2013; "Criteria For Assigning 'CCC+', 'CCC', 'CCC-', And 'CC' Ratings," Oct. 1, 2012; "Methodology: Credit Stability Criteria," May 3, 2010; and "Use of CreditWatch And Outlooks," Sept. 14, The primary analyst would like to thank Linda Yeh and Aakansha Khandelwal for their analytical contributions to this presale report. Analytical Team Primary Credit Analyst: Rahel Avigdor, New York (1) ; rahel.avigdor@spglobal.com Secondary Contact: Elizabeth T Fitzpatrick, New York (1) ; elizabeth.fitzpatrick@spglobal.com FEBRUARY 9,

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