KBRA Assigns Preliminary Ratings to Octane Receivables Trust 2020-1

NEW YORK–(BUSINESS WIRE)–Kroll Bond Rating Agency (KBRA) assigns preliminary ratings to four classes of notes issued by Octane Receivables Trust 2020-1 (“OCTL 2020-1”), a powersports equipment loan ABS transaction.

OCTL 2020-1 will issue four classes of notes totaling $251.26 million. The transaction is expected to be collateralized by approximately $256.0 million of fixed rate installment loans, made to prime and non-prime borrowers as of the closing date. The preliminary ratings reflect the initial credit enhancement levels ranging from 22.93% for the Class A notes to 2.85% for the Class D notes, which build to 29.74% and 9.66% for the Class A and Class D notes, respectively.

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 powersports equipment loans in general. In considering this risk, KBRA increased its base case default assumptions for the subject pool in a manner that was consistent with recent portfolio reviews of the auto sector that were highlighted in reports published on July 16, 2020 and April 21, 2020. None of the Octane Receivables Trust 2019-1 (“OCTL 2019-1”) outstanding ratings were placed on Watch due to sufficient credit enhancement and, in the case of the former review, the performance of the receivables.

Octane Lending, Inc. (“Octane” or the “Company”) originates direct consumer loans and indirect consumer retail installment contracts through powersports and outdoor power equipment dealerships. Through its subsidiary Roadrunner Financial, Inc. (“Roadrunner”), the Company began offering financing products in June 2016. Octane partners with over 40 original equipment manufacturer brands (“OEMs”) and provides financing to customers purchasing all-terrain vehicles (ATVs), utility terrain vehicles (UTVs), dirt bikes, motorcycles, mowers, tractors, snowmobiles, personal watercrafts, and other powersports and outdoor power assets. Octane’s customer demographic is full credit spectrum and includes prime and non-prime obligors. The Company is headquartered in New York, New York and services loans through its indirect subsidary Roadrunner Account Services, LLC (“RAS”) located in Irving, Texas.

KBRA applied its General Global Rating Methodology for Asset-Backed Securities, Auto Loan ABS Global Rating Methodology and Global Structured Finance Counterparty Methodology as part of its analysis of the transaction’s underlying collateral pool, the proposed capital structure, Octane’s historical static pool data, 2008 powersport credit bureau performance data used by Octane to benchmark their performance, and static pool loss data for comparable automobile finance companies. KBRA also conducted an on-site operational review of Octane at its Irving, TX servicing center in October 2019 and has frequent updates with the Company’s management team. KBRA will 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

• General Global Rating Methodology for Asset-Backed Securities
• Auto Loan ABS Global Rating Methodology
• Global Structured Finance Counterparty 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 is registered with ESMA as a CRA.

Contacts

Analytical


Alla Mikhalevsky, CFA, Director (Lead Analyst)

+1 (646) 731-3356

amikhalevsky@kbra.com

Michael Pettigrew, Analyst

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mpettigrew@kbra.com

Abby Barkwell, Director

+1 (646) 731-3304

abarkwell@kbra.com

Eric Neglia, Managing Director (Rating Committee Chair)

+1 (646) 731-2456

eneglia@kbra.com

Business Development


Ted Burbage, Managing Director

+1 (646) 731-3325

tburbage@kbra.com