Credit Acceptance Corp. (CAC) is expected to close a $350 million securitization of subprime auto loans in Sept. 25, according to a pre-sale from Standard & Poor’s.
The initial purchasers of Credit Acceptance Auto Loan Trust (CAALT) 2014-2 are Wells Fargo Securities, BMO Capital Markets GKST and Fifth Third Securities.
This follows another deal from the sponsor this year for $200 million.
Kroll Bond Rating Agency (KBRA) also rated the upcoming deal, which has a $273 million A tranche and a $76 million B piece. Kroll and S&P both rated the A notes triple A and the B notes double A.
A $1 million subordinated piece was unrated.
Incorporated in 1972, CAC focuses on the “deep subprime” segment, according to S&P.
Within the pool backing CAALT 2014-2, the average loan balance was $7,393, the weighted average APR was 21.39%, and the weighted average FICO of the underlying borrowers was 549.
CAC has an idiosyncratic approach to its especially credit-challenged borrowers.
Under the company’s program, it advances a share of the expected future cash flows to the auto dealer at origination, KBRA said, adding that 20% of the collections on the consumer loan flow to [CAC] as a servicing fee and 80% to pay down the dealer loan. Once the dealer loan is repaid, [CAC] and the dealer generally split subsequent collections on the loan with 20% going to CAC for servicing and 80% to the dealer.
CAC originated nearly 60% of the pool in the 2013-2014 timeframe.
The most financed make among the finance cars is Chevrolet, accounting for 18.05% of the vehicles in the pool. Ford came in second, with 15.07%, and the third was Dodge, with 10%.
In stress testing, S&P established that the deal's credit enhancement was high enough to cover an 100% loss severity for the top five dealer concentrations, which add up to a combined 7.5% (the structure caps deal concentration in a single dealer at 1.5%.)
KBRA said that the transaction enjoys initial credit enhancement levels of 39.2% for the Class A notes and 21.8% for the class B tranche.
The deal is CAC’s ninth stand-alone securitization since 2008.