The auto loan securitization sector is continuing its relative hot streak in early 2023, as Credit Acceptance Auto Loan Trust, 2023-1 prepares to raise $375.1 million in issued notes secured by retail, non-prime quality auto loan contracts.
The current transaction eliminated a class D tranche of asset-backed notes, which had been present in several previous deals, according to the Asset Securitization Report. The absence of a class D tranche is one of several structural changes from previous Credit Acceptance transactions, according to a pre-sale report from S&P Global Ratings.
This helped reduce total initial hard credit enhancement on all classes of the deal, also called the CAALT 2022-3.
Credit Acceptance Corp., the deal's sponsor, sold the loans into the transaction. Typically Credit Acceptance sells the contracts as dealer loans, which are pools of advances made to dealers, and as purchased loans, which Credit Acceptance purchases outright from dealers, Moody's Investors Service explained in its pre-sale report about the deal.
Subordination levels for classes A, B and C are 38.12%, 20.84%, and 0%, respectively, down from 47.63%, 33.68% and 18.18%, according to S&P. Further, total initial hard credit enhancement on classes A, B and C are 59.75%, 42.47% an 21.63%, respectively, down from 71.23%, 57.28% and 41.78%, according to the rating agency.
Wells Fargo Securities and BMO Capital Markets are lead underwriters on the deal, which will issue the notes through a senior-subordinate structure, Moody's said.
The rating agency pointed to a number of potential credit challenges, including a 24-mont revolving period. What really concerns Moody's is that CAALT 2023-1 features limited collateral concentration limits on some of the loans' characteristics, like obligor credit quality. As it is, the collateral is of non-prime quality, with a non-zero weighted average FICO score of 575, Moody's said.
"There is increased risk that collateral quality will deteriorate as the transaction revolves and adds new collateral," the rating agency said, adding that "Structural features that mitigate these risks include early amortization triggers such as a collection rate trigger."
Moody's expects to assign ratings of 'Aaa' to the class A notes; 'Aa2' to the class B notes and 'A3' to the class C notes. For its part S&P expects to assign ratings of 'AAA' to the class A notes; 'AA' to the class B notes and 'A' to the class C notes.
