Subprime auto loan contracts underpin the collateral of American Credit Acceptance Receivables Trust, 2021-3, which will issue $460 million in asset-backed securities, in the entity’s thirty-fifth transaction since 2011.
It is the third transaction for 2021, and is largely secured by automobile contracts issued to subprime buyers of new and used automobiles and motorcycles, according to Kroll Bond Rating Agency.
Despite the weaker credit nature of the underlying auto contracts, DBRS Morningstar notes that the senior management of American Credit Acceptance, LLC, the deal’s sponsor, has considerable experience. On average, the team has 19 years in the banking, finance and auto finance companies, as well as about eight years of tenure at the company itself, on average.
DBRS also noted that the company’s portfolio has a history of consistent performance.
The transaction capital structure features credit enhancement in the form of overcollateralization, senior and subordinated certificates, a reserve fund amounting to about 1% of the initial collateral balance, and excess spread.
When it comes to loss expectations on the deal, Kroll noted that its average base case expected loss range is between 22.35% and 24.35%, and its aggregate lifetime expected cumulative net loss is lower compared with ACAR 2021-2. Also, KBRA noted that the ACAR 2021-3 includes about 1% of called collateral, compared with 9% in the prior deal, the ACAR 2021-2, a $455 million transaction.
DBRS, meanwhile, believes that credit enhancement levels are enough to support cumulative net loss assumptions under various scenarios. The subordinated notes in the pool, the reserve fund, and overcollateralization support its ‘AAA’ rating on the $208 million class A notes.
As for the rest of the capital structure, DBRS expects to assign ‘AA’ to $51 million of the class B notes; ‘A’ to $85 million of the class C notes; ‘BBB’ to $51.5 million of the class D notes; ‘BB’ to $28.2 million of the class E notes; and ‘B’ on $10.3 million on the class F notes.
KBRA expects to assign the same ratings to the same classes of notes, although the amounts of notes that it will rate vary from DBRS.
