Automotive Credit Corporation (ACC) is issuing $222.8 million in four grades of notes for its second asset-backed security (ABS) and first this year, according to a pre-sale report released Thursday by the Kroll Bond Ratings Agency .
Maxim Berger of KBRA, Director; Junoh Lee, Deputy Director; Michael Polvere, Associate Director; and Eric Neglia, Senior Managing Director, authored the report.
AUTOC 2022-A has a $165.99 million tranche rated ‘A-‘ by KBRA with an initial credit enhancement of 33.7%; a BBB-rated $17.627 million tranche with an initial credit enhancement of 26.5%; a $14.812 million tranche with an initial credit enhancement of 20.45% and a BB+ rating; and a $24.361 million tranche with an initial credit enhancement of 10.50% and a B+ rating “ rating.
Some of the money made through AUTOC 2022-A will repay storage facilities and add credit capacity for future lending, the report said.
The notes are backed by a pool of auto contracts made to subprime borrowers and backed by used and new cars and trucks, the KBRA report said.
In addition, ACC may repurchase any overdue or defaulted receivables from the transaction.
30-year-old ACC is a suburban Detroit company owned by founder and CEO Jim Blasius. It has total assets of $384 million (as of 2021) and equity of about $44 million, the report said. The company makes indirect subprime auto loans by purchasing installment contracts from more than 1,100 dealerships in 30 states, the report said. Last year, ACC funded $312 million in new ventures — more than double the company’s $139 million in 2020.
ACC will be the sponsor and the owner trustee is the Wilmington Savings Fund Society, FSB. The lockbox bank is Comerica Bank and the backup service provider is Vervent Inc.
With the exception of uncredited loans, ACC focuses on lower-quality subprime borrowers with a weighted average credit score of just under 600. ACC says it screens the borrower’s income, employment, residency, income and credentials, KBRA said .
According to KBRA, the weighted average coupon in the collateral pool is 19.86% and the average principal amount is $13,449. The average remaining term is 51 months.
Borrowers in the pool typically have a higher loan-to-value ratio after the supply chain was impacted by the Covid-19 shutdown due to limited supply and high demand for used car purchases. KBRA assumed a net repayment rate of 35% as trends are unlikely to be sustainable once supply and demand normalize as borrowers repay loans, KBRA wrote.
The expected collateral pool is primarily located in California (23%), Florida (18.5%) and Indiana (9.7%), giving these three states 51.2% of the total balance, according to the report.
In evaluating the ABS, KBRS considered how the subprime market is subject to federal government oversight such as the Department of Justice and the Federal Trade Commission.