Arra Finance, Obra Capital plan new subprime auto ABS platform

Newly rebranded subprime auto lender Arra Finance and alternative asset manager Obra Capital are

laying the groundwork for an upcoming auto loan securitization program, according to company

executives.

Plans are in place to become a programmatic issuer in the subprime auto ABS market, with an inaugural

securitization targeted in a year or two, said Matt Roesler, managing director of structured credit for

Obra Capital.

Focus for now lies on getting word out about the program, familiarizing rating agencies, identifying

capital markets partners and establishing warehouse lines of credit ahead of a planned ramp-up in

originations, which are expected to begin in early 4Q24, Roesler said.

The company has been in discussions with several parties regarding a USD 100m warehouse facility,

according to a separate source familiar with the matter.

Obra executives in August announced that they had partnered with the management of Solera Auto

Finance to help them purchase the lender from parent Solera Corp, along with plans to rebrand SAF as

Arra Finance.

While Obra onboarded SAF's management team, infrastructure and dealer network, the transaction

didn't include a large book of loans, Roesler said.

Under Solera Corp, SAF maintained relationships with about 6,000 retail dealers, which post-buyout has

been optimized and scaled back to roughly 1,000 core dealerships with the capacity of producing some

USD 50m in loan originations per month, said Arra Finance CEO and CRO Kenn Wardle

That figure is expected to balloon substantially, with plans to boost the nationwide dealer pool to

12,000-15,000, Wardle said. "We're going to be diligent in our initial market re-ramp, then, once finetuned,

we expect to open the spigot."

Tailwinds are in place to support that goal, with a surge of pent-up demand expected on the heels of

Federal Reserve rate cuts, according to Wardle. The Fed cuts rates by 50bps on 18 September, with

more cuts on the horizon.

From a credit perspective, Arra aims at the sweet spot between deep subprime and prime territories,

targeting borrowers with Fico scores in the 520 to 680 range, Wardle said. That's an underserved

population right now given a pullback by credit unions lending in the high-subprime and non-prime

spaces, according to Roesler.

Auto ABS new issue volume on the whole so far in 2024 stands at USD 149bn, with full-year issuance

expected to hit USD 186hn or more than 56% of total ABS volume, according to BofA Global Research.

That's up from USD 160bn of auto ABS new issues for FY23 and USD 121bn for FY22.

Law firm McDermott Will & Emery is advising Obra.