American Credit Acceptance Receivables Trust, 2022-4 is preparing to securitize a pool of earnings from non-priming retail installment loans, raising $300 million from the capital markets.
The bonds issued in the transaction, known as ACAR 2022-4, will benefit from experienced sponsors and servicers, according to Moody’s Investor Service.
However, the list of issues within a transaction is slightly longer. One, sponsor American Credit Acceptance, is an unrated and financially weak servicer, Moody’s said.
“Financially weaker servicers/sponsors may be less able to mitigate uncollateral-related risks on behalf of ABS bondholders,” the rating agency said. If it has to be transferred, performance may suffer.”
The non-prime quality of the loans is another challenge to the note, according to the rating agency. The weighted average (WA) FICO score for the pool is 541, not zero. Previous ACAR transactions issued in 2021 and early 2022 have performed poorly compared to 2020 and pre-pandemic transactions. Initial performance data on more recent deals reveals higher cumulative net losses for more recent managed portfolio origination vintages, leading to higher expected losses for ACAR 2022-4 deals, according to rating agency about it.
Virtually the entire loan pool, or 99%, is used car financing. Still, if used car prices drop significantly, the pool could remain vulnerable to reduced collection costs.
To mitigate many of these risk factors, ACAR 2022-4 bonds benefit from reserves, overcollateralization, subordination and excess spreads. Cash reserves provide liquidity for banknotes.
Moody’s expects to assign ratings ranging from ‘Aaa’ for $105.7 million class A notes to ‘Baa2’ for $39.6 million class D notes. The final legal maturities of the notes range from May 2026 to January 2030.