AmeriCredit Financial Services is floating a $1.2 billion subprime auto loan asset-backed securities transaction, its first senior subordinate retail auto loan issuance this year.
Moody's Ratings said AmeriCredit-originated non-prime retail installment auto loan contracts to back the deal, which could be upsized.
According to a Securities and Exchange Commission filing last week, Barclays, BNP Paribas, Morgan Stanley, Société Générale, and Wells Fargo Securities are the joint bookrunners on the deal. Deutsche Bank Securities, Goldman Sachs, Mizuho, and MUFG are the co-managers solely on the Class-A notes. Both Moody's Ratings and S&P Global Ratings rated the transaction.
The transaction's class A-2 notes may consist of a fixed-rate class A-2-A and a floating-rate class A-2-B, S&P said. Upon the deal's issuance, up to 75% of the class A-2 notes could be allocated to the class A-2-B, which will accrue interest at a floating rate indexed to a 30-day compounded secured overnight financing rate (SOFR) plus a spread.
Moody's finds that the deal's fundamental credit strengths are the issuer's experience as a servicer, previous AMCAR deals' "resilient performance" in economic downturns, and enhancement buildup due to the pool amortizing. This deal's environmental, social, and governance (ESG) credit risks are also considered low.
The challenges to the timely repayment of notes abound, however. Moody's finds that around 94.6% of the balance of the AMCAR 2024-1 pool is represented by loans with original terms of 61-84 months for both the base and upsize pools, similar to 94.6% in AMCAR 2023-2.
Additional risks include the underlying collateral pool's non-prime credit quality, the unhedged floating rate liability, and the risk of decreasing used vehicle prices.
The underlying contracts have a 588 weighted average FICO for both the base and upsized pools. The rating agency's expected 9.0 percent loss for the pool is based on several factors, including middle-of-the-range weighted average (WA) AmeriCredit and FICO scores, and slightly higher WA LTV compared to other recent AMCAR deals.
Yet previous AMCAR transactions have performed consistently better than other non-prime deals, a track record that mitigates the credit risks, the rating agencies said.
In recent months, used car prices have slightly softened and dropped from the high levels seen earlier in 2024. Falling used car prices make the transaction vulnerable to lower recovery rates as well as higher loss severity and net losses.
