Subprime auto leases will collateralize a $207 million asset-backed securities (ABS) transaction, which will issue notes to bondholders through the ACC Trust 2022-1.
ACC Trust will issue the notes through three classes, through a senior-subordinate structure, and using a sequential pay structure, according to a presale report from the Kroll Bond Rating Agency. Once the class A notes have received principal payments in full, class B notes will receive principal, followed by class C and then class D.
Various RAC entities will perform key functions on the transactions, according to KBRA. RAC King will sponsor the transaction, and RAC Servicer, LLC will act as servicer on the transaction.
The notes benefit from credit enhancement in several forms, including overcollateralization, a cash reserve account, excess spread and the subordination of junior notes.
KBRA expects to assign ratings ranging from ‘AA’ on the $110 million class A notes to ‘BB-’ on the $30 million class D notes.
Initial overcollateralization is 20.9% of the initial discounted pool balance, which will build to a target of 25.5% of the initial securitized value. ACC Trust also has a cash reserve account, a non-declining cash reserve equal to 2.0% of the concerns initial securitized value.
Excess spread is about 11.4%. The deal arrives at that by discounting the collateral at approximately 19.1%, less 4.0% gross servicing and backup servicing fee, and a weighted average life adjusted note coupon of 3.65%
High demand and short supply of vehicles, owing partly to the shortage of semiconductor chips for new car components, has continued to raise prices on wholesale prices for used cars. In response RAC Asset Holdings has been purchasing older, higher mileage vehicle inventory to maintain the affordability of obligor’s lease payments, KBRA said. Between March 31, 2021 and December 31, 2021, average mileage increased from 60,000 miles to 75,000 miles and the age of vehicles increased from 2-4 years to 3-5 years. To offset car usage and age, RAC has increased front-end reconditioning expenses from about $1,500 to $1,750, in addition to maintaining its routine of detailed inspections.
