NEW YORK–(BUSINESS WIRE)–Kroll Bond Rating Agency (KBRA) assigns preliminary ratings to five classes of American Credit Acceptance Receivables Trust 2020-2 (“ACAR 2020-2”), an auto loan ABS transaction.
The financial impact of COVID-19 has resulted in an economic slowdown and rising unemployment, which is expected to adversely impact the performance of auto loans, including those supporting the subject transaction. Owing to KBRA’s expectations of high and rising unemployment through Q3 2020 followed by improved conditions, KBRA increased its base case default assumptions for the subject pool in a manner that was consistent with a recent portfolio review of the sector detailed in the following report: U.S. Auto Loan and Auto Lease ABS Securities on Watch Report. Due to the impact of COVID-19 on the economy, KBRA also used lower recovery rates and a longer recovery lag assumption on defaulted loans.
American Credit Acceptance Receivables Trust 2020-2 (“ACAR 2020-2” or the “Issuer”) issued five classes of notes totaling $209.33 million that are collateralized by a pool of retail automobile contracts, made to subprime obligors and secured by new and used automobiles and motorcycles.
The structure and collateral for ACAR 2020-2 are generally similar with the previous ACAR 2020-1 transaction. However, key structural differences from the prior deal include higher enhancement for all classes, a 1% increase to the reserve and no prefunding. In addition, compared to ACAR 2020-1, ACAR 2020-2 includes limited called collateral and stronger asset eligibility that excludes loans that have received deferrals from March 15 to the cut-off date. The transaction has initial hard credit enhancement levels of 65.25% for the Class A Notes through 23.50% for the Class E Notes. Credit enhancement consists of excess spread, overcollateralization, subordination (except for the Class E Notes) and a reserve account funded at closing.
American Credit Acceptance, LLC (“ACA” or the “Company”) issued its first securitization in October 2011 and since then has issued 29 additional transactions in the total amount of approximately $6.8 billion. ACA is a subprime auto finance company that has been under current ownership since 2007. ACA originates loans through two marketing platforms, “Tier 1” and “Tier 2”, which represent 57.00% and 43.00% of the pool as of the cut-off date, respectively. The platforms are focused on purchasing contracts from franchised and independent automobile and motorcycle dealers.
KBRA applied its Global Auto Loan ABS methodology and its Global Structured Finance Counterparty Methodology as part of its analysis of the transaction’s underlying collateral pool, the proposed capital structure and ACA’s historical static pool data. KBRA also conducted an operational assessment on the originator and servicer, as well as a review of the transaction’s legal structure and transaction documents. KBRA will also review the operative agreements and legal opinions for the transaction prior to closing.
- American Credit Acceptance Receivables Trust 2020-2 KCAT
- Global Structured Finance Counterparty Methodology
- Global Auto Loan ABS Rating Methodology
Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above.
A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the U.S. Information Disclosure Form located here.
Information on the meaning of each rating category can be located here.
Further disclosures relating to this rating action are available in the U.S. Information Disclosure Form referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.
KBRA is a full-service credit rating agency registered as an NRSRO with the U.S. Securities and Exchange Commission. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and is a certified Credit Rating Agency (CRA) with the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.
Rahel Avigdor, Director (Lead Analyst)
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Jenny Ovalle, Director
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Eric Neglia, Managing Director
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Rosemary Kelley, Senior Managing Director (Rating Committee Chair)
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Ted Burbage, Managing Director
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