Called collateral enhances ACA's $234m subprime auto deal

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American Credit Acceptance bundled leftover loans from some paid-off asset-backed transactions to fortify its latest $234.1 million deep-subprime vehicle securitization.

American Credit Acceptance Receivables (ACAR) Trust 2017-3 is a follow-up to the Spartanburg, S.C.-based lender’s $221.11 million transaction in June. It is the 19th overall with total volume of $3.8 billion in securitizations since the company launched its ABS shelf in October 2011.

The previously securitized loans were culled from five retired ACAR transactions originally issued between 2012-2014, and represent 20% (or $57.8 million) of the pool collateral vs. just 4.4% of called collateral with the 2017-2 transaction. These older loans have an average seasoning of 31 months, compared to an average of fewer than four months for most new originations introduced into ACAR pools.

The called collateral elevated the average seasoning to over 14 months in the pool, allowed for lower credit enhancement levels across the capital stack as well as declining expected loss levels.

The impact of the older loans in the pool prompted both S&P Global Ratings and Kroll Bond Rating Agency to reduce the expected cumulative net loss (CNL) range on the deal by nearly 200 basis points each. S&P forecast losses at 26.75%-27.75% from the 28.5%-29.5% range it assigned to the second ACAR deal this year. KBRA’s cumulative net loss range also was shaved to 26.9%-28.9% from 28.9-30.9%.

Bond rating agency DBRS has weighed in with a CNL estimate of 26.75%.

Credit enhancement levels were reduced across the capital stack, with the $98.64 million Class A senior fixed notes dropping slightly to 65.58% CE support from the 66% level from the ACAR 2017-2 deal.

S&P, KBRA, and DBRS have each assigned preliminary AAA ratings to the Class A notes, as well as ratings to the four subordinate note classes.

The lower CE level for the new deal was derived from tinkering with the capital structure subordination – increasing Class A’s subordination level to 49.34% from 48.2%, and decreasing the initial (14.75%) and target (22%) overcollateralization figures from 16.2% and 23.5%, respectively.

The inclusion of the called collateral overcame some deteriorating credit metrics in the new pool: an increased average loan-to-value ratio (125.86%, up from 122.6%), a slight uptick in long-term loans (to 86.02% from 85.88%) and a rising debt-to-income ratio among borrowers to 43.38% from 41.54%. Borrowers have an average loan balance of $11,221 with a 23.08% interest rate.

The structure of the deal includes a prefunding account to purchase additional receivables of up to 22% of the initial pool balance of $166.2 million for three months after closing.

Nearly 50% of its loans are through its Tier 1 Core indirect platform that issues middle-market auto inventory and motorcycles for loans with traditional 100-125% loan-to-value ratios and sized between $6,000 and $18,000. The Tier 2 program, comprising 44.5% of the pool, is for loans for higher-mileage, older cars financed typically between $3,000 and $9,000 through a network of new and used dealers.

The pool consists of loans for new and used cars and motorcycles that it acquires from both franchised and non-franchised dealers. American Credit Acceptance services the loans as well.

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