ACC Auto Trust readies $222.791 million in ABS notes on subprime fixed rate installment loans

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 presale report released Thursday by Kroll Bond Ratings Agency.

KBRA’s Maxim Berger, director; Junoh Lee, associate director; Michael Polvere, associate director; and Eric Neglia, senior managing director, authored the report.

AUTOC 2022-A has a $165.99-million tranche that KBRA rated ‘A-’ with a 33.7% initial credit enhancement; a rated ‘BBB’ $17.627-million tranche with a 26.5% initial credit enhancement; a $14.812-million tranche with an initial credit enhancement of 20.45% and a ‘BB+’ rating, and a $24.361-million tranche with a 10.50% initial credit enhancement and a ‘B+’ rating.

Some of the money earned from AUTOC 2022-A will repay warehouse facilities and add borrowing capacity for future originations, the report said.

The notes will be collateralized by a pool of automobile contracts made to subprime borrowers and secured by used and new automobiles and trucks, the KBRA report said.

Also, ACC may repurchase delinquent or defaulted receivables from the transaction.

Thirty-year-old ACC is a suburban Detroit company that is owned by founder and CEO Jim Blasius. It has $384 million in total assets, as of 2021, and shareholders’ equity of about $44 million, the report said. The company originates indirect subprime auto loans by buying installment contracts from more than 1,100 dealerships in 30 states, the report said. Last year, ACC funded $312 million in originations – more than double the company’s 2020 amount of $139 million.

ACC will serve as the sponsor and the owner trustee is Wilmington Savings Fund Society, FSB. The lockbox bank is Comerica Bank and the back-up servicer is Vervent Inc.

Excluding loans with no credit score, ACC focuses on lower quality subprime borrowers with a weighted average credit score just under 600. ACC says that it verifies the borrower’s income, employment, residence, income and references, 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 loans, courtesy of limited supply and high demand to purchase used cars after Covid-19 shutdowns hurt the supply chain. KBRA assumed a 35% net recovery rate as the trends are unlikely to be sustainable once the supply-and-demand normalizes while borrowers pay off the 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 factored in how the subprime market is subject to oversight from the federal government such as the Department of Justice and the Federal Trade Commission.

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