A pool of non-prime auto loans financing cars, sport utility vehicles, crossover utility vehicles and light-duty trucks will secure the $1.3 billion in notes from the AmeriCredit Automobile Receivables Trust, scheduled to close in about one week.
RBC Capital Markets is the deal's lead underwriter, which will issue notes through a senior-subordinate structure, according to Moody's Investors Service. Meanwhile, Citigroup Global Markets will lead a group of managers that includes Mizuho Securities, Scotia Capital and Société Générale, according to Asset Securitization Report's deal database.
An economic downturn is widely expected, so it counts as a potential credit strength that AmeriCredit Automobile Receivables Trust's record of weathering the 2008-2009 financial crisis was better than most issuers in its credit range, according to a pre-sale report from Moody's Investors Service. Transactions from this platform between 2006 and 2008 experienced losses ranging from 1.2x to 1.7x of the rating agency's original expectations.
The notes will accumulate credit enhancement as the underlying pool of loans amortizes, Moody's said. When the deal closes the notes will have an overcollateralization level of 5.75%, which will increase to a target of 14.75%. Other forms of credit enhancement include a non-declining minimum reserve fund of 2.00%, and 25.35% in subordinated notes, the rating agency said.
That's not to say that AmeriCredit doesn't have its share of credit challenges. For one, loans with original terms of 61-84 months represent about 94.8% of the outstanding balance. Original terms in that range expose the loans to borrower life events that could hurt their ability to keep up with payments.
Also, used car prices have been declining recently as demand falls, which exposes the transaction to lower recovery rates.
Moody's expects to assign ratings of 'P-1' to the most senior notes, the A-1 notes; 'Aaa' to the A-2-A through the class B notes; 'Aa2' to the class C notes; 'Baa2' to the class D notes; and 'Ba2' to the class E notes.
S&P, for its part, will assign ratings of 'A-1+' to the most senior notes; 'AAA' to the A-2-A through A3 notes; 'AA' to the class B notes; 'A' to the class C notes; and 'BBB' to the class C notes.
