American Credit Acceptance Receivables Trust, 2022-4, is preparing to securitize a pool of revenue from non-prime quality retail installment loans, raising $300 million from the capital markets.
The issued notes from the deal—known as ACAR 2022-4—will benefit from an experienced sponsor and servicer, according to Moody's Investor Service, which is one of the deal's main credit strengths.
The list of challenges in the transaction, however, is a bit longer. For one, American Credit Acceptance, the sponsor, is unrated and a financially weak servicer, Moody's said.
"A financially weak servicer/sponsor may be less able to mitigate non-collateral related risks on behalf of ABS bondholders," the rating agency said. "Furthermore, should servicing need to be transferred to the backup servicer, performance may suffer."
The non-prime quality of the loans is another challenge to the notes, the rating agency said. The pool has a non-zero, weighted average (WA) FICO score of 541. Previous ACAR transactions issued in 2021 and early 2022 have shown weaker performance compared with 2020 and pre-pandemic transactions. Early performance data on more recent transactions had revealed higher cumulative net losses of more recent managed portfolio origination vintages, leading to higher expected losses for the ACAR 2022-4 deal, according to the rating agency.
Virtually the entire pool of loans, or 99% are financing used cars. Even that might leave the pool vulnerable to reduced recovery costs, should prices for used cars drop notably.
To mitigate many of these risk factors, the notes from ACAR 2022-4 benefit from a reserve fund, overcollateralization, subordination and excess spread. A cash reserve provides liquidity to the notes.
Moody's expects to assign ratings ranging from 'Aaa' on the $105.7 million, class A notes to 'Baa2' on the $39.6 million, class D notes. Legal final maturity on the notes ranges from May 2026 through January 2030.
