Subprime indirect auto lender American Credit Acceptance caters to customers with flawed FICOs that average 543, and continues to extend the vast majority of new and used auto loans beyond five years.

But nonetheless, the company has joined the ranks of ‘AAA’-rated senior notes in collateral pools with its latest securitization of new and used auto and motorcyle loans, in a $211.25 million notes transaction.

ACA, which has had 17 securitizations, has “sufficiently mitigated certain limitations” on its credit strengths and past performance of securitization, according to Standard & Poor’s, earning an ‘AAA’ for the first time from both S&P and Kroll Bond Rating Agency.

“ACA has now been operating successfully for over nine years in a highly competitive market and has become a more stable and established finance company,” an S&P presale published Tuesday noted. “Its growth has moderated, and the majority of its business is coming from relationships with the largest dealer groups.”

ACA has also exhibited a nine-year performance record and the past performance of its securitization (including four pools paid off since 2011) has earned ACA the promotion to ‘AAA’ for its deals.

Previously the long-time indirect and direct auto lender was capped at ‘AA’ ratings for its senior notes, most recently with a $230.1 million transaction on its American Credit Acceptance Receivables Trust platform.

Another subprime lender, Flagship Credit Acceptance, also recently achieved its first 'AAA' rating on the senior notes of its previous deal in August.

The latest pool of new and used auto and motorcycle loans will have a target receivables balance of $195 million at closing (initially $155.4 million, as of the cutoff date) through 10,216 contracts with an average loan balance of $15,214. Borrowers pay a steep average APR of 22.9% -- well wide of spreads for subprime rivals like Sierra Auto Receivables Securitization Trust, DT Auto Onwer Trust, GLS Auto Receivables and Westlake Automobile Receivables trust. – and have average weighted terms of 69.19 months.

ACA originates loan contracts through different tier platforms. It’s Tier 1 Core indirect platforms issues middle-market auto inventory and motorcycles for loans with traditional 100-125% loan-to-value ratios and sized between $6,000 and $18,000, according to KBRA. The Tier 2 program is for higher-mileage, older cars financed typically between $3,000 and $9,000 through a network of new and used dealers.

ACA is also a partner with CarMax in a partnership launched in 2010 to finance loans between $12,000 and $21,000.

The company has improved liquidity, improved its servicing, collections, underwriting and compliance areas, and is “better positioned” for potential downturns, S&P noted. The corporate debt-to-equity ratio declined to 4.6x (compared to 5.8x from May 2014) and has completed more than nine years of ABS performance and has paid off four securitizations since 2011.

The average weighted FICO score is 543, with more than 51% of loans made to customers with FICOs below 600. More than 12% of loans in the pool lack a FICO score.

ACA, based in Spartanburg, S.C., continues to stretch the terms of the loans it originates, with the concentration of loans between 61 and 72 months making up 88.63% of the collateral pool, compared to 84.19% for the recent DT Auto Owner Trust collateralization.  

The deal, which closes Nov. 18, was underwritten by Citigroup.

The four-year, Class A notes series earning the new ‘AAA’ ratings  is sized at $96.88 million, with preliminary triple A ratings from Standard & Poor’s and Kroll Bond Rating Agency. The transaction also includes a Class B notes tranche totaling $26.88 million, rated ‘AA’ by both agencies; a Class C tranche of $43.1 million in notes rated ‘A’; a Class D series of $37.5 million in notes rated ‘BBB’ and a subordinate Class E tranche of $6.88 million in notes with a ‘BB’ rating.

The initial credit enhancement on the Class A notes is 62.75%.

ACA’s managed portfolio has grown to $1.6 billion, as of Sept. 30, with total delinquencies of 20.19%

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