KBRA Assigns Preliminary Ratings to American Credit Acceptance Receivables Trust 2020-4

NEW YORK–(BUSINESS WIRE)–Kroll Bond Rating Agency (KBRA) assigns preliminary ratings to six classes of American Credit Acceptance Receivables Trust 2020-4 (“ACAR 2020-4”), an auto loan ABS transaction. ACAR 2020-4 will issue six classes of notes totaling $400.00 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 2020-4 are generally similar with the previous ACAR 2020-3 transaction.

The transaction has initial hard credit enhancement levels of 61.90% for the Class A Notes through 13.45% 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 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% and 38.00% 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, Kroll Bond Rating Agency (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 2008-2009 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.

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 2020-4 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.

Contacts

Analytical Contacts

Rahel Avigdor, Director (Lead Analyst)

+1 (646) 731-1203

ravigdor@kbra.com

Jenny Ovalle, Director

+1 (646) 731-2309

jovalle@kbra.com

Eric Neglia, Managing Director

+1 (646) 731-2456

eneglia@kbra.com

Rosemary Kelley, Senior Managing Director (Rating Committee Chair)

+1 (646) 731-2337

rkelley@kbra.com

Business Development Contact

Ted Burbage, Managing Director

+1 (646) 731-3325

tburbage@kbra.com