KBRA Assigns Preliminary Ratings to American Credit Acceptance Receivables Trust 2020-3
NEW YORK–(BUSINESS WIRE)–Kroll Bond Rating Agency (KBRA) assigns preliminary ratings to six classes of American Credit Acceptance Receivables Trust 2020-3 (“ACAR 2020-3”), an auto loan ABS transaction.
American Credit Acceptance Receivables Trust 2020-3 (“ACAR 2020-3” or the “Issuer”) will issue six classes of notes totaling $360.00 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 2020-3 are generally similar with the previous ACAR 2020-2 transaction. However, key structural differences from the prior deal include lower enhancement for all classes, a 0.50% decrease to the overcollateralization floor, a 0.50% decrease to the reserve account and the issuance of Class F notes. In addition, ACAR 2020-3 includes approximately 4.40% called collateral.
The transaction has initial hard credit enhancement levels of 62.75% for the Class A Notes through 13.95% 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 (“ACA” or the “Company”) issued its first securitization in October 2011 and since then has issued 30 additional transactions in the total amount of approximately $7.09 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 59.50% and 40.50% 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.
The financial impact of COVID-19 has resulted in an economic slowdown and high unemployment, which can adversely impact the performance of auto loans, including those supporting the subject transaction. Owing to this risk, KBRA increased its base case default assumptions for the subject pool in a manner that was similar to recent portfolio reviews of the sector. A review conducted in April resulted in 10 ratings from four ACAR transactions being placed on Watch Developing or Watch Downgrade. Since then, credit enhancement has increased for all those securities and the underlying collateral demonstrated improved/stable performance as the number of impaired borrowers declined. As a result, all 10 ratings were recently removed from Watch and affirmed. For more information on the reviews, see: Auto Loan and Auto Lease ABS Securities Maintains Watch Report and U.S. Auto Loan and Auto Lease ABS Securities on Watch Report.
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.
Click here to view the report. To access ratings and relevant documents, click here.
Related Publications
- American Credit Acceptance Receivables Trust 2020-3 KCAT
- Global Structured Finance Counterparty Methodology
- Global Auto Loan ABS Rating Methodology
Disclosures
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.
About KBRA
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.
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