American Credit Acceptance is preparing $230 million of bonds backed by subprime auto loans, its third term securitization of the year.
The deal, American Credit Acceptance Receivables Trust 2016-3, will issue four tranches of notes; the senior class A notes, which mature in November 2020, are rated ‘AA’ by Kroll Bond Rating Agency and benefit from credit enhancement of 52.25%. The three other classes have ratings ranging from ‘A’ to ‘BB’ and credit enhancement ranging from 36.5% to 16%.
The notes are backed by a pool of loans originated and serviced by American Credit Acceptance Corp; Wells Fargo is the backup servicer.
In its presale report, Kroll noted that the credit enhancement for the class A, B and C notes is slightly higher than for the comparable tranche of American Credit Acceptance’s previous deal. This is because Kroll expects losses on the collateral to be slightly higher, in its base case scenario.
American Credit Acceptance originates loans from two platforms, “Tier 1” and “Tier 2.” Both specialize in purchasing contracts from franchised dealers; however, Tier 2 loans have lower vehicle costs, are financed by a lower amount, and are collateralized by older, higher mileages vehicles and result in higher loan losses, according to Kroll.
Each platform makes loans through two channels, the “strategic” channel and the “core” channel. Kroll considers loans made through the strategic channel to be less risky; however it now considers them to be riskier than in the past.
So even though 2016-3 has the same concentration of higher quality Tier 1 loans as American Credit Acceptance’s previous deal, and more of these Tier 1 loans were made through the strategic channel, Kroll still expects there to be higher losses on the collateral for the new deal.
American Credit Acceptance has been profitable since 2009, and is promoting sustainable growth and maintaining diversified funding sources to beget financial strength.
Since the company’s first securitization in October 2011, it has issued fourteen transactions in total.
