RAC Asset Holdings, a company that offers used car financings exclusively through leases, is preparing to raise $239.8 million from the asset-backed securities market through its ACC Trust 2021-1.
The Memphis, Tenn.-based RAC is the captive finance company that provides lease financing directly to customers through American Car Center, the brand that operates its owned car dealerships, according to Moody’s Investors Service.
RAC Asset Holdings serves subprime auto lessors and oversees the full lease and lease financing process from acquiring the vehicles, reconditioning them, purchase option sales, underwriting, lease servicing and after-sale support, according to an overview from Kroll Bond Rating Agency.
As of March 31, 2021, RAC Asset Holdings operated 68 dealerships in 10 states, and had a managed portfolio of around 50,000 active customer accounts and a lease principal balance of $706 million. It funds the leases through a combination of equity capital, operational cash flow, and a warehouse line of credit provided by Credit Suisse and another participant, notes KBRA.
The specified pool of leases has an aggregate securitization value of $297.8 million, and an undiscounted residual value of $70.4 million.
While the deal is secured by payments on leases extended to subprime borrowers, the agencies noted several credit strengths, beginning with the company’s successful track record in management and finance. York Capital, a New York City-based global investment firm, is majority owner of ACC and Michael Shivers, Jr., who previously managed the company for 20 years, is minority owners.
Attributes in the transaction’s structure also bolsters confidence. Four classes make up the deal, which has credit enhancement in the form of a reserve account, overcollateralization, subordination except for the class D notes, and excess spread.
While the sponsor’s business structure lends some confidence to the deal, Moody’s notes that ACC 2021-1 has a low exposure to residual value risk. It is a plus, because low residual value exposure reduces the market value risk of the vehicles at the end of the lease. On an undiscounted basis, the deal’s residual value that as a percentage of the securitization value is 23.7 percent, significantly lower than the 65 percent to 70 percent range for other auto lease transactions, Moody’s says.
