First Investors Auto Owner Trust

Transcription

1 Presale: First Investors Auto Owner Trust This presale report is based on information as of Sept. 7, 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 As Of Sept. 7, 2016 Class Preliminary rating(i) Type Interest rate Preliminary amount (mil. $)(ii) Legal final maturity date A-1 AAA (sf) Senior Fixed Nov. 16, 2020 A-2 AAA (sf) Senior Fixed Nov. 15, 2021 B AA (sf) Subordinate Fixed July 15, 2022 C A (sf) Subordinate Fixed July 15, 2022 D BBB (sf) Subordinate Fixed Nov. 15, 2022 E BB (sf) Subordinate Fixed Sept. 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 Sept. 22, 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 Wells Fargo Securities, LLC and 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) SEPTEMBER 7,

2 Credit Enhancement Summary FIAOT FIAOT FIAOT FIAOT FIAOT Preliminary rating Class A AAA (sf) AAA (sf) AAA (sf) AAA (sf) AAA (sf) Class B AA (sf) AA (sf) AA (sf) AA (sf) AA (sf) Class C A (sf) A (sf) A (sf) A (sf) A (sf) Class D BBB (sf) BBB (sf) BBB (sf) BBB (sf) BBB (sf) Class E 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) $230 million asset-backed notes reflect: The availability of approximately 34.9%, 30.6%, 24.2%, 18.8%, 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 3.65x, 3.15x, 2.45x, 1.85x, and 1.50x coverage of our 9.00%-9.50% expected cumulative net SEPTEMBER 7,

3 loss (CNL) range for the class A, B, C, D, and E notes, respectively (see the Cash Flow Modeling Assumptions And 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 19% of the cut-off pool. These loans historically have lower losses than the indirect-originated loans. First Investors Financial Services Inc.'s (First Investors') 26-year history of originating and underwriting auto loans, 15-year history of self-servicing auto loans, and 12 years as a third-party servicer, 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 hard credit enhancement at closing for classes A, B, C, D, and E decreased by 1.40%, 1.02%, 1.17%, 0.97%, and 0.60% respectively. This is linked to the decrease in our loss expectation (see the S&P Global Ratings' Expected Loss section below) and the increase in estimated annual excess spread. Initial overcollateralization (O/C) decreased to 0.00% from 0.60%. Target O/C increased to 5.15% of the current pool balance from 4.55%. Subordination for the class A, B, C, and D notes decreased to 24.00%, 19.13%, 11.13%, and 4.48%, respectively, from 24.80%, 19.55%, 11.70%, and 4.85%. Excess spread increased to approximately 8.16% per year from approximately 7.86% (after pricing). The transaction does not include prefunding. 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 decreased to 122.6% from 124.8%. This is the lowest observed LTV ratio since the transaction. The weighted average FICO score increased to 587 from 584. This is the highest weighted average FICO observed since the transaction. The percentage of loans originated under the direct program decreased slightly to 19.32% from 25.56%. The percentage of long-term loans (those with an original term of months) in the pool decreased to 92.21% from 95.14%. The percentage of new vehicles decreased to 26.77% from 28.9%. The weighted average seasoning has increased to 1.92 months from 1.74 months. Overall, we believe that the credit quality of the collateral in the pool is slightly better than the pool, based on the improved LTV ratio and FICO score. As a result, we decreased our expected loss range to 9.00%-9.50% from 9.25%-9.75% (see the S&P Global Ratings' Expected Loss section below). SEPTEMBER 7,

4 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 decreased its owned portfolio by 2% as of July 31, 2016, to $1.14 billion from the prior year. The active dealer base was approximately 1,700 as of July 31, 2016, down from 2,600 as of May 31, Per management, the company deactivated approximately 700 dealerships during the second half of 2015 due to failure to meet productivity targets. 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' second securitization in It completed two transactions in 2015, three transactions in both 2013 and 2014, and two transactions in both 2012 and 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. SEPTEMBER 7,

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 5.15% of the current pool balance subject to a floor of 0.50% of the initial pool balance. We expect the pool to generate approximately 8.16% excess spread per year. SEPTEMBER 7,

6 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 Oct. 17, 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). 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. SEPTEMBER 7,

7 Table 1 Payment Waterfall (cont.) Priority Payment 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. 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. SEPTEMBER 7,

8 Table 2 Payment Waterfall (cont.) Priority Payment 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 July 31, 2016, its managed portfolio was $1.14 billion, a 2.0% 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 SEPTEMBER 7,

9 verifications. Total 30-plus-day delinquencies increased to 5.72% as of July 31, 2016, from 4.40% as of July 31, Extensions have been comparable with past years. Net losses as a percent of the average principal balance outstanding for the three months ended July increased to 4.23% (annualized) from 3.75% for the three months ended July 31, Even though this is higher than the net loss percentages reported for fiscal-years ended April 2012, 2013, and 2014, it remains lower than the levels. Per management, weaker performance is mainly driven by a greater percentage of the portfolio in its peak delinquency and loss period. The percentage of the portfolio 13 to 30 months seasoned increased to 44% as of July 31, 2016, from 41% as of July 31, Table 4 Owned Portfolio Total contract portfolio (mil. $) As of July 31 As of April , , , , Delinquencies (%)(i) days days plus days Total 30-plus days Credit loss Average principal balance outstanding (mil. $) Three months ended July 31 Fiscal-year ended April , , , , Net losses (mil. $) 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 $230 million in First Investors-originated automobile loans as of the cutoff date, Aug. 31, Unlike , the series transaction does not have a prefunding period. Table 5 shows the collateral characteristics of First Investors 's initial pool, as well as those of First Investors' previous initial pools. SEPTEMBER 7,

10 Table 5 Collateral Comparison FIAOT Collateral cut-off date Total collateral balance ($) No. of receivables Avg. principal balance ($) Aug. 31, 2016 Jan. 31, 2016 July 31, 2015(i) March 31, 2015(i) Oct. 22, 2014(i) July 31, 2014 March 31, 2014 Oct. 31, 2013 July 31, ,000, ,008, ,419, ,001, ,147, ,000, ,000, ,009, ,767,679 11,052 7,851 7,860 8,905 8,438 10,864 10,605 12,329 8,602 20,811 21,654 21,427 21,337 21,468 20,711 20,745 20,278 20,550 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=13.35 TX=14.26 TX=13.92 TX=14.66 TX=16.93 TX=18.66 TX= TX= TX= CA=10.36 CA=9.59 CA=10.42 CA=11.41 CA=12.25 CA=12.23 CA= CA= 9.97 G = GA=8.44 NC=7.73 NC=7.99 NC=8.27 FL=8.91 FL=9.13 FL= 8.99 FL= 8.33 OH= 7.45 NC=6.99 GA=7.56 GA=7.37 FL=8.08 GA=7.04 NC=6.59 GA= 7.29 GA= 7.97 AZ= SEPTEMBER 7,

11 Table 5 Collateral Comparison (cont.) FIAOT Initial expected CNL (%) Revised expected CNL (%) (ii) FL=6.79 FL=7.42 FL=7.11 GA=7.08 NC=6.97 GA=6.51 NC= 7.05 OH= 7.50 CA= N/A N/A N/A N/A Paid-off CNL N/A N/A N/A N/A N/A N/A N/A N/A N/A (i)initial cut-off pool. Does not include prefunding. (ii)revised as of May 2016, except for series , which was revised as of September 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 First Investors has 10 S&P Global Ratings' rated outstanding public FIAOT ABS transactions (see chart 2). 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% and 8.14% CNL, respectively. SEPTEMBER 7,

12 Chart 2 In analyzing the securitization performance, we also examined cumulative gross losses and cumulative recoveries. The 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. To estimate losses on the series pool, we assumed future recovery rates to be at the lower end of this range. SEPTEMBER 7,

13 Chart 3 Surveillance We currently have ratings on 10 FIAOT transactions, which were issued from (see table 6). Most of First Investors' outstanding transactions have exhibited relatively consistent securitization performance; however, we have seen increased net losses in outstanding transactions (see chart 2 and table 6). As a result, in January 2016, we increased our loss expectations for six transactions (series to ). In May 2016, we further increased our loss expectations for series and our initial loss expectation for series (see "Sixteen First Investors Auto Owner Trust Ratings Raised; 23 Ratings Affirmed," published May 12, 2016). At this time, we are slightly raising our loss expectation for series and maintaining our loss expectations for series to We have also maintained our lifetime loss expectations for FIAOT's series , , and transactions. Given the short amount of securitized performance for these transactions (16 months or less) and high pool factors (higher than 60%), we are maintaining our initial loss expectation pending further collateral performance data. However, 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 SEPTEMBER 7,

14 monitor these transactions' performances to determine if they remain consistent with the assigned ratings or if we believe a rating action is appropriate. Table 6 Collateral Performance (%) As of the August 2016 distribution date Series Month Pool factor CNL 60-plus DQ Initial lifetime CNL exp. Revised lifetime CNL exp.(i) N/A N/A N/A CNL--Cumulative net loss. N/A--Not applicable. DQ--Delinquent.(i) revised as of May 2016, except series revised as of Aug Table 7 Hard Credit Support (%) As of the August 2016 distribution date Series Class Total hard credit support as issuance(i) Current total hard credit support (% of current) C D B C D A B C D A B C D A B C D A B C SEPTEMBER 7,

15 Table 7 Hard Credit Support (%) (cont.) As of the August 2016 distribution date Series Class Total hard credit support as issuance(i) Current total hard credit support (% of current) D A B C D A B C D 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. S&P Global Ratings' Expected Loss: 9.00%-9.50% To derive the base-case loss level for the series transaction, we analyzed First Investors' securitization performance (see table 6), origination static pool data, and deal-level collateral characteristics. First Investors provided quarterly origination static pool net loss data broken out by program type (direct versus indirect) and LTV ratios, 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. We applied two loss timing curves in the projection, the curve and the curve; the latter represents a more normalized economic environment. Overall, First Investors' origination static pool data showed that its 2007 and 2008 vintages exhibited record-high losses compared with its previous vintages, a trend similar to that for most other issuers. However, performance improved in , though securitization losses have started to trend slightly higher. Origination characteristics have remained relatively stable until mid-december 2014 when First Investors implemented tighter underwriting guidelines, including reducing maximum LTV ratios and expanded verifications. SEPTEMBER 7,

16 Based on First Investors' performance data, direct loans have historically experienced lower losses than indirect loans, despite their higher LTV ratios. 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 lower at 19.3% than the average concentration in the outstanding securitization pools, which management attributes to the current competitive rate environment. Based on our static pool analysis, CNL projections for First Investors' outstanding pools, the current macroeconomic conditions, and the series pool's credit quality compared with previous pools, we expect the series pool's CNL to be between 9.00%-9.50%. 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 8). Table 8 Cash Flow Assumptions/Results Class Front-loaded loss curve A B C D E 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) 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 speeds. We ran cash flow scenarios using the assumptions shown in table 8. 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 SEPTEMBER 7,

17 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 9). Table 9 Scenario Analysis Summary -Moderate Loss Scenario Loss level (multiple) Cumulative net loss (%) Cumulative net loss timing (12/24/36/48) (%) ABS voluntary prepayments (%) Recoveries (%) Recovery lag (mos.) 4. Servicing fee (%) x base case. 30/60/85/100. Coverage multiple Class A Class B Class C Class D Class E Initially 2.2x and reaches 2.8x in month 12, growing thereafter. Initially 1.9x and reaches 2.4x in month 12, growing thereafter. Initially 1.5x and reaches 1.7x in month 12, growing thereafter. Initially 1.1x, generally stable until month 12, growing thereafter. Initially 0.8x, decreases to 0.78x in month 12 months and decreases thereafter. Class E defaults at month 70 with 55% of principal repaid. ABS--Absolute prepayment speed. SEPTEMBER 7,

18 Chart 4 Moderate loss scenario: 17.11% (1.85x cumulative net loss results) In our view, under the 1.85x 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 SEPTEMBER 7,

19 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 July 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 Ratings Above The Sovereign-Structured Finance: Methodology And Assumptions, Aug. 8, 2016 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 Methodology Applied To Fees, Expenses, And Indemnifications, July 12, 2012 Global Investment Criteria For Temporary Investments In Transaction Accounts, May 31, 2012 General Methodology And Assumptions For Rating U.S. Auto Loan Securitizations, Jan. 11, 2011 Standard & Poor's Revises Criteria Methodology For Servicer Risk Assessment, May 28, 2009 Legal Criteria For U.S. Structured Finance Transactions: Special-Purpose Entities, Oct. 1, 2006 Legal Criteria For U.S. Structured Finance Transactions: Select Issues Criteria, Oct. 1, 2006 Legal Criteria For U.S. Structured Finance Transactions: Criteria Related To Asset-Backed Securities, Oct. 1, 2006 Legal Criteria For U.S. Structured Finance Transactions: Appendix III: Revised UCC Article 9 Criteria, Oct. 1, 2006 Legal Criteria For U.S. Structured Finance Transactions: Securitizations By Code Transferors, Oct. 1, 2006 Related Research Sixteen First Investors Auto Owner Trust Ratings Raised; 23 Ratings Affirmed, May 12, 2016 Global Structured Finance Scenario And Sensitivity Analysis: Understanding The Effects Of Macroeconomic Factors On Credit Quality, July 2, SEPTEMBER 7,

20 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 S&P Global Ratings 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 Joyce Kang 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 SEPTEMBER 7,

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