Moody's: CAC's next subprime auto ABS projects 30% cumulative losses

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Credit ratings agencies are widely diverging on expected losses for a new subprime auto-loan securitization by Credit Acceptance Corp.

S&P Global Ratings is projecting a 23% cumulative net loss for the shelf life of the $480.75 million Credit Acceptance Auto Loan Trust (CAALT) 2020-2, which is secured by a pool of acquired loans as well as dealer advances made by CAC in its unique financing tool for dealers underwriting borrowers in the deep end of the subprime space.

Moody’s Investors Service, however, is expecting losses to hit 30%, noting an uptick in credit losses in the company’s recent securitizations – “and losses have been tracking higher with each successive vintage,” an agency report stated.

Of course, a major reason for Moody’s published loss estimate is the economic stress of the COVID-19 pandemic, which prompted a three percentage-point increase over Moody’s loss projection or CAC’s previous securitization last February prior to the outbreak’s surge in the U.S.

Both Moody’s and S&P have assigned early triple-A ratings to a $264 million tranche of senior notes in the transaction. CAC is also offering a $76 million Class B tranche rated AA by S&P and Aa3 by Moody’s, and a $44.6 million Class C tranche rated A by S&P and A2 by Moody’s.

The notes are secured by collateral pool of $641.1 million in outstanding balances expected to be collected from borrowers and dealers from the loans and advances.

The unique collateral pool in CAC securitizations involve dealer loans that are pools of advances (in bundles of either 50 or 100 cross-collateralized loans) that are paid from 80% of collections from dealers. (The remainder 20% is kept by CAC as a service fee.) CAC holds the title and lien on vehicles backed by a dealer advance, but as an incentive dealers can keep 80% of collections from borrowers after the advances are paid.

About 66% of the net book value of the collateral pool are represented by dealer advances; the remainder are in financial contracts obtained and managed by CAC.

The pool consists of 71,599 contracts with weighted-average original terms of 61 months, with average 15-month seasoning.

The borrowers have a WA FICO of 546 and a WA APR of 22.3%.

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