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Higher credit losses expected for $302M ACA subprime auto ABS

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American Credit Acceptance is sponsoring a new subprime auto securitization with slightly worse credit characteristics from its last issuance.

But that prior transaction has the benefit of collateral not included in the ACA’s 28th overall asset-backed offering: well-seasoned performing loans that were included in a prior deal.

The $302.8 million American Credit Acceptance Receivables Trust 2019-3 is a pool of $174.4 million in primarily used-car loans to borrowers with poor credit (or a weighted average FICO of 542).

Those loans, with average original terms of 70 months, only have an average seasoning of 1.7 months, compared to 5.9 months of aging for loans pooled in the ACAR Trust 2019-2 transaction that closed in April.

That pool benefited, however, from the inclusion of 7.5% of its collateral from loans that had been part of ACAR’s paid down 2015-3 transaction, and had more than 36 months of current-pay activity.

The lack of payment history on the newer loans in the 2019-3 pool means S&P Global Ratings has estimated a slightly higher loss range of 27.85%-28.75% for the new deal, compared to 27%-28% for the 2019-2 issuance.

Kroll Bond Rating Agency also expects higher cumulative losses, with a projected range of 27.4%-29.4%, compared to 25.5%-27.5% for the last deal. Kroll also cited projections for slightly higher losses in ACA’s so-called “core” channel of deep subprime originations, among its borrowers with the lowest-tier credit scores.

ACA’s trust will issue six classes of senior and subordinate notes, including a $117.99 million Class A tranche with preliminary AAA ratings from S&P and Kroll. The Class A notes benefit from the 65.75% credit enhancement that includes 56% subordination of the junior notes, an 8.25% overcollateralization and a 1.5% reserve account.

Wells Fargo is the lead structuring agent on the deal.

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Subprime lending Auto ABS