Credit Acceptance Loan Trust is preparing to sell another batch of asset-backed securities (ABS) to investors, with a pool of non-prime auto loan contracts acting as collateral. The deal will raise $562.7 million in notes through the program's 2024-2 series.
The Credit Acceptance corporate entity, which finances the contracts, is sponsoring the deal, according to Moody's Ratings analysts. When the company sells them into the trust, they take two forms, dealer loans and purchase loans, the latter being loans that Credit Acceptance purchases from dealers, Moody's said.
CAALT 2024-2 will sell the notes to investors through three tranches of class A, B and C notes, according to Moody's. The A, B and C notes have total initial hard credit enhancement levels of 61.9%, 45.9%, and 21.6%; and they have legal final maturity dates of June 15, 2034, Aug. 15, 2034 and Oct. 16, 2034, respectively. The deal structure also features a two-year revolving period, followed by a full-turbo amortization phase. This shuts the residual holder out of any collections during the amortization period, the rating agency said.
Among the program's credit strength is a risk-mitigation loan origination program, Moody's said. Dealers loans are cross-collateralized pools of contracts where collection performance primarily affects dealer's back-end profit. And they make up 69% of CAALT 2024-2's net book value, the rating agency said.
Yet Credit Acceptance's role as sponsor is a credit challenge by itself, stemming from ongoing legal and regulatory challenges, according to Moody's. They include a joint lawsuit that the New York attorney general and the Consumer Financial Protection Bureau have brought against it.
Despite those challenges, the transaction has a couple of mitigating factors, Moody's said. For one, Credit Acceptance has been consistently profitable since its founding 52 years ago, and it has lower financial leverage than other issuers. Also, if the backup servicer, Computershare Trust Co., must take over those duties, at least it has a long-term issuer rating of Baa2, with a stable outlook.
Wells Fargo Securities, BMO Capital Markets, Fifth Third Securities, Citizens JMP Securities and Wedbush Securities.
