Automotive Credit Corporation (ACC) is issuing four classes of notes worth $222.8 million for its second asset-backed security (ABS) and its first issued this year, according to a pre-sale report released Thursday by the rating agency Kroll Bond.
Maxim Berger of KBRA, director; Junoh Lee, associate director; Michael Polvere, Associate Director; and Eric Neglia, Senior Managing Director, wrote the report.
AUTOC 2022-A has a tranche of $165.99 million which KBRA has rated “A-” with an initial credit enhancement of 33.7%; a $17.627 million tranche rated “BBB” with an initial credit enhancement of 26.5%; a tranche of $14.812 million with an initial credit enhancement of 20.45% and a “BB+” rating, and a tranche of $24.361 million with an initial credit enhancement of 10.50% and a “B+” rating .
Some of the money earned from AUTOC 2022-A will repay warehouses and add borrowing capacity for future creations, according to the report.
The notes will be secured by a pool of auto contracts with subprime borrowers and secured by new and used automobiles and trucks, according to the KBRA report.
In addition, ACC may redeem outstanding or defaulted receivables from the transaction.
Thirty-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 around $44 million, according to the report. The company creates indirect subprime auto loans by purchasing installment contracts from more than 1,100 dealerships in 30 states, according to the report. Last year, ACC funded $312 million in creatives, more than double the company’s $139 million in 2020.
The ACC will serve as sponsor and the owner trustee is the Wilmington Savings Fund Society, FSB. The safe bank is Comerica Bank and the backup service is Vervent Inc.
Excluding loans with no credit score, the ACC focuses on lower quality subprime borrowers with a weighted average credit score just below 600. The ACC says it checks income, employment, residency , the borrower’s income and references, the KBRA said.
KBRA said the weighted average coupon in the collateral pool is 19.86% and the average principal balance is $13,449. The average remaining term is 51 months.
Borrowers in the pool tend to have higher loan-to-value ratio loans, thanks to limited supply and strong demand for used car purchases after the Covid-19 shutdowns hurt the supply chain. ‘supply. KBRA assumed a net recovery rate of 35% because the trends are unlikely to be sustainable once supply and demand normalize while borrowers repay loans, KBRA wrote.
The expected collateral pool is mostly in California (23%), Florida (18.5%) and Indiana (9.7%), making those three states 51.2% of the total balance, according to the report.
When rating the ABS, KBRS considered how the subprime mortgage market is subject to federal government oversight, such as the Department of Justice and the Federal Trade Commission.