American Credit Acceptance plans second ABS this year

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Subprime auto finance company American Credit Acceptance (ACA) is launching its second asset-backed security of 2022.

According to an April 18 pre-sale report from Kroll Bond Rating Agency.

ACAR 2022-2 has a $197.73 million tranche rated “AAA” by KBRA; a $42.05 million tranche rated “AA”; a $75 million tranche rated “A”; a $53.86 million tranche rated “BBB”; a $41.82 million tranche rated “BB”; and a $14.54 million tranche rated “B”. The deadline is April 29.

ACAR 2022-2 will use a sequential payout structure in which class “A” notes receive principal payments before all subordinate notes, according to the report. Once class “A” is repaid, classes “B”, “C”, “D”, “E”, then “F” will receive principal payments, KBRA wrote.

KBRA analysts noted that the COVID-19 pandemic shutdowns have led to auto production delays and resulting price inflation in the used-vehicle market. They warned that if used car prices return to normalized levels, there is potential for lower recovery rates on defaulted warranties.

Bloomberg

The analytical contacts on KBRA’s pre-sale report are Rahel Avigdor, Senior Director; Brockton Bowers, analyst; Eric Neglia, Senior Managing Director; and Sandy Azer, director.

The owner trustee is Wilmington Trust, NA, and American Credit Acceptance, LLC, is the sponsor.

ACA focuses on subprime borrowers with an average FICO score of up to the mid-500s. The company’s track record in serving subprime borrowers is strong, and the company benefits from multiple “origination channels” so it can transition from channel to channel depending on market conditions,” KBRA said.

Since its first securitization in 2011, ACA has issued 37 more, for a total of about $10.8 billion, according to the pre-sale report. Thirteen ACAR ratings have outstanding ratings, KBRA noted.

ACA has been profitable since 2009 and its management team has an average of over 16 years of experience in the subprime auto finance industry.

The company has issued loans under its current management team since 2007, according to the report. It is majority-owned by George Johnson Jr., who “has experience building and scaling businesses including WJB Video, Extended Stay America, and Advance America Cash Advance,” the report said. ACA is headquartered in Spartanburg, South Carolina.

Within ACAR 2022-2, the excess spread is around 15.67%, according to the KBRA report.

There are a few differences from the previous trust, which closed on January 27. The projected gross excess spread of ACAR 2022-2 is 2.13% lower than that of ACAR 2022-1. In addition, ACAR 2022-2 has 3.8% guarantees called, compared to less than 1% in ACAR 2022-1.

One of the concerns of KBRA analysts is that the COVID-19 pandemic shutdowns have led to car production delays and resultant price inflation in the used-vehicle market. KBRA warned that if used car prices return to normalized levels, there is potential for lower recovery rates on defaulted warranties.

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