Exeter Automobile Receivables Trust 2023-5 Annual Report - How They Did This Year

I’m here to help you break down the latest annual report for the Exeter Automobile Receivables Trust 2023-5. Instead of wading through complex legal filings, we’ll look at what this means for you as an investor.

1. What does this trust do and how did it perform?

Think of this trust as a vault holding thousands of auto loans. Exeter Finance bundles these loans together, and you own a slice of the monthly payments those drivers make.

The trust started with $1.05 billion in subprime auto loans. Independent accounting firms, Ernst & Young and KPMG, confirmed that Exeter Finance and Citibank followed all servicing rules, with no issues reported regarding how the loans were managed.

2. Financial performance

The trust earns money from the interest and principal payments made by drivers. Since late 2023, the trust has paid out over $450 million to investors. Class A notes, which have the highest priority, pay a 6.38% fixed rate. Subordinate classes (B, C, and D) pay higher yields—up to 8.24%—to reward you for taking on more risk. The trust pays investors in a specific order, ensuring Class A noteholders get paid first.

3. Major wins and oversight

Clayton Fixed Income Services acts as an independent auditor to ensure the loans match the quality promised at the start. So far, the loan pool is performing exactly as expected, confirming that the trust is operating with high-level oversight.

4. Financial health

The trust is self-contained and does not rely on outside credit boosters. It uses cash from the car loans to pay investors and maintains a $2.1 million reserve account as a safety net. If borrower payments fall short, this cash covers the gap to ensure you continue to receive payments.

5. Key risks

Exeter faces standard legal risks, such as potential lawsuits over repossession or collection practices. The primary risk to your investment is "loss severity." If more borrowers default than the expected 12-15%, the protection for lower-tier investors could shrink. Currently, there are no legal issues that threaten the trust’s ability to pay its debts.

6. Competitive positioning

Exeter specializes in "non-prime" auto lending, charging higher interest rates to offset the risk of borrowers with lower credit scores. By bundling these loans into this trust, Exeter moves the long-term risk to investors, which allows them to free up capital to issue new loans.

7. Leadership and strategy

CEO Jason Kulas continues to lead Exeter Finance with a strategy focused on aggressive collection and early management of late accounts to keep cash flowing steadily.

8. Future outlook

The trust is currently shrinking as borrowers pay off their loans. You should expect a steady, predictable decline in the principal balance over the next 24 to 36 months. As the pool shrinks, your credit protection naturally improves.

9. Market trends and regulations

Exeter adheres to strict rules from agencies like the Consumer Financial Protection Bureau and passed all compliance checks this year. Any future changes to consumer protection laws regarding vehicle repossession could affect how quickly the trust recovers money from defaulted loans.

The trust is operating as promised and is audited by top-tier firms. It is performing within its expected loss projections, providing a stable yield for investors who understand the risks associated with subprime auto loans. Before investing, consider whether the current yields on the Class A through D notes align with your personal risk tolerance and your timeline for receiving principal payments.