Credit Acceptance Corp. is preparing to sponsor $500 million in asset-backed securities (ABS) secured by non-prime quality auto loan contracts, to be sold to investors through the Credit Acceptance Auto Loan Trust, 2024-1.
Among the deal's credit strengths, according to Moody's Investors Service, is its loan origination program that aligns the interest of dealers with its own, creating a long-term partnership with the auto dealers. CAC originates the dealer loans, which make up 62% of the net book value, and are cross-collateralized retail installment contracts, where variations in collection performance mainly affect dealers' back-end profits, Moody's.
Classes A, B and C notes benefit from total hard credit enhancement equaling 53.91%, 43.61% and 21.63%, respectively, according to Moody's. Credit enhancement consists of over-collateralization, subordination of the junior classes, excess spread and a non-declining cash reserve account representing 1.60% of the pool.
BMO Capital Markets, Wells Fargo Securities, Fifth Third Securities, Citizens JMP Securities and Wedbush Securities are lead underwriters on the deal. Asset Securitization Report's deal database expects the deal to close on March 29. Classes A and B have a May 15, 2034 legal final maturity date, while the class C notes have a legal final maturity of July 17, 2034.
The transaction, known as CAALT 2024-1, has several credit drawbacks, however. The trust employs a 24-month revolving period, which makes the pool performance more variable. Also, CAC is a non-investment-grade sponsor and servicer and has been subject to several regulatory inquiries in recent years. Some of this is mitigated by the fact that CAC has been consistently profitable and has lower financial leverage than other issuers.
Further the collateral is made up of a non-zero weighted average (WA) FICO score of 562. Moody's says it expects CAALT 2024-1, and the rating agency has an expected loss of 27% for the principal balance of the pool's retail installment contracts.
The pool is made up of 137,740 retail installment contracts, Moody's said. Of that, dealer loans account for 62% of the pool, while purchased loans make up 38%. Also, 98.3% of vehicles are used.
Moody's assigns ratings of Aaa, Aa2 and A3 to the A, B and C notes, respectively. S&P Global Ratings, meanwhile, assigns AAA, AA and A to the A, B and C notes, respectively.
