A pool of used non-prime quality auto loans will provide collateral to $400 million in asset-backed notes from American Credit Acceptance Receivables, in a deal that is slated to close on May 3.
It is the second securitization of the year for the trust, whose notes have total initial hard credit enhancement ranging from 63.9% on the class A notes to 17.3% on the class E notes, according to Moody's Investors Service. Among the deal's key credit characteristics is that the notes will build up credit enhancement as the pool amortizes, according to Moody's.
When the deal closes, credit enhancement on the class A note will include overcollateralization, which will be 16.3% and is expected to increase to a level of 20% of the current pool balance and 2.5% of the sum of original pool balance and aggregate principal balance of subsequent receivables. A non-declining cash reserve fund will reach 1.0% of the initial pool balance and principal balance of all subsequent receivables, and 46.6% in subordinated notes.
For all of those attributes, however, Moody's pointed out a number of credit challenges with ACAR 2023-3, including the non-prime quality of the auto loans, a financially weak servicer and weakening recent performance in the pools. As of the deal's cut-off date, the underlying loans had a non-zero weighted average (WA) FICO score of 535.
Citigroup Global Markets is lead underwriter on the deal, according to Moody's.
American Credit Acceptance is the deal sponsor and servicer, but Moody's does not rate it. A financially weak sponsor might be less able to mitigate non-collateral related risks on behalf of asset-backed securities bondholders. ACAR transactions issued in 2021 and 2022 have exhibited weaker performance compared with pre-pandemic deals, although early performance data also show higher cumulative net losses of recent ACA's origination vintages.
Other pool characteristics show that on average the collateral has a remaining loan size of $17,593, a loan-to-value ratio of 111%, and an annual percentage rate of 24.7%. The loans have a WA original term of 71 months, with a remaining WA term of 66 months.
The rating agency intends to assign ratings of 'Aaa' to classes A and B notes, with initial hard credit enhancement of 63.9% and 55.5%; 'Aa3' to the class C notes, with initial hard credit enhancement of 40.1%; and 'Baa3' to the class D notes.
