Kroll Assigns ACA Ratings

By Staff Writer October 16, 2020

Kroll Bond Rating Agency (KBRA) assigns preliminary ratings to six classes of American Credit Acceptance Receivables Trust 2020-4, an auto loan ABS transaction. ACAR 2020-4 will issue six classes of notes totaling $400 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 2020-4 are generally similar with the previous ACAR 2020-3 transaction.

The transaction has initial hard credit enhancement levels of 61.90 percent for the Class A Notes through 13.45 percent for the Class F Notes. Credit enhancement consists of excess spread, overcollateralization, subordination (except for the Class F Notes) and a reserve account funded at closing.

American Credit Acceptance, LLC issued its first securitization in October 2011 and since then has issued 31 additional transactions in the total amount of approximately $7.6 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 62.00 percent and 38.00 percent of the pool as of the statistical cut-off date, respectively. The platforms are focused on purchasing contracts from franchised and independent automobile and motorcycle dealers.

The financial impact of COVID-19 has resulted in an economic slowdown and high unemployment, which can adversely impact the performance of the subject pool and auto loans in general. In considering this risk, KBRA applied additional stress scenarios by increasing its expected base case gross charge-off assumptions for this transaction. The assumption increase was derived from KBRA’s analysis of the relationship between the historical unemployment rate and annualized gross loss rates through the 2008-09 financial crisis for different types of lending products. The increase in loss assumptions also incorporated an analysis of the recent performance of loans enrolled in the company’s extension program and the performance of these loans when the temporary relief expired.

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Last modified on Wednesday, 21 October 2020 17:12