Rising loss expectations have forced American Credit Acceptance to provide slightly higher levels of credit enhancement on its fourth subprime auto loan securitization of the year.
The $200 million American Credit Acceptance Receivables (ACAR) Trust 2017-4 is smaller than recent ACA transactions, and it has a prefunding feature; Just $120 million of loans are included in the initial pool of collateral. The rest will be acquired within three months of the deal's closing.
Moreover, some 21% of the initial collateral comes from from prior ACAR transactions that have been called. Since 2011, ACA has issued 20 securitizations totaling $3.98 billion.
To earn an AAA on the senior tranche of notes, the sponsor had to offer 66.35% initial credit enhancement — a higher level than recent transactions that have ranged from 62.75% to 66%. (September’s initial CE level was 65.58%.) Both Kroll Bond Rating Agency and S&P Global Ratings provided triple-A ratings.
The collateral pool consists of subprime retail vehicle contracts for new and used autos and motorcycles that ACA purchases from franchised and independent dealers. It also purchases loans through a partnership with used-car retail superstore chain CarMax.
Kroll states that the credit characteristics of the collateral is similar to that of ACA's previous deal, with average loan balances of $12,735 on original terms of 69 months and interest rates of 23.47%. The average loan-to-value on the vehicles is 125.7%, although some higher-mileage used cars carry LTVs up to 160% on loans between $6,000 and $15,000.
The loans in the current pool are seasoned only 8.1 months, compared to ACAR 2017-3 with 12.2 months of seasoning.
Most of the loans from the privately held lender are made to deep subprime borrowers; 58.7% have FICO scores under 550.
KBRA expects cumulative net losses to range from 27.9 to 29.9%, up from 26.9%-28.9% for ACAR's prior deal. For S&P, the loss expectation elevated to 28.25%-29.25% from 26.75%-27.75%, mostly due to the lower pool share (21%) of called collateral in the new deal.
Rising loss projections are also due to the weak performance of recent securitizations; eight deals between 2014 and 2016 have revised base-case loss ranges that have exceeded KBRA’s initial loss estimate, the agency’s presale report noted.
KBRA also reports that ACA had elevated levels of loan extensions granted in September to borrowers in FEMA-designated areas impacted by Hurricanes Harvey and Irma, but those extension levels have returned to normal. The current pool has a 36.7% exposure to contracts in Texas and Florida.
