America’s Car-Mart Auto Trust 2022-1 (ACMAT 2022-1) is preparing a $400-million securitization of a pool of fixed-rate installment loans made to used-vehicle subprime borrowers.
ACMAT 2022-1 is the first rated asset-backed security (ABS) sponsored by Rogers, Arkansas-based America’s Car Mart, Inc., according to the Kroll Bond Rating Agency. The trust will issue four classes of notes.
KBRA expects to assign ratings of ‘AA-’ on the $236 million Class A notes; ‘A-’ on the $52 million class B notes; ‘BBB-’ on the $74.57 million class ‘C’ notes and ‘BB-’ on the $37.43 million class ‘D’ notes, wrote the analysts, Romil Chouhan, Eric Neglia, Michael Espino and Junoh Lee.
Colonial Auto Finance, Inc. is the seller. BNY Mellon Trust of Delaware is the owner trustee. America’s Car Mart, Inc. and Texas Car-Mart, Inc. are the originators. The leadership team at Car-Mart has been in the subprime auto finance business for more than 40 years and its senior management has 20 years of experience with Car-Mart on average, KBRA said. Wilmington Trust, NA is the indenture trustee, backup server and calculation agent, according to a pre-sale report from KBRA released on April 13.
The weighted average of the pool’s FICO score is 553 and the loans have an average principal balance of $11,167, KBRA said. The cars are used and have a weighted average remaining term of 32 months. Their weighted average original term was 41 months.
As of Feb. 28, ACMAT 2022-1 has $571.4 million in receivables. The weighted average loan-to-value ratio is 111.11 % and the weighted average seasoning is nine months.
The expected closing date is April 27. The legal final maturity date is April 20, 2029.
Car-Mart’s ability to generate net income and liquidity position is “viewed favorably” by the rating agency. KBRA noted that Car-Mart has “access to a $600 million (with a $100 million expansion option) revolving credit facility provided by nine financial institutions that matures in September 2024.”
One downside is that rising interest rates – the highest in 40 years in the U.S – may hurt consumer confidence and cause borrowers to have less discretionary income to pay their debts because of subsequent inflation.
Furthermore, the majority of the car loans are from the U.S. South Central region. Most of the borrowers live in Arkansas, Oklahoma and Missouri, a concern in case of natural disasters, regional recession or public health concerns such as the coronavirus outbreak, KBRA wrote.
KBRA applied its Global Structured Finance Counterparty Methodology, ESG Global Rating Methodology and Auto Loan ABS Global Rating Methodology as part of its analysis.
