DBRS Assigns Provisional Ratings to Credit Acceptance Auto Loan Trust 2016-3

DBRS, Inc. (DBRS) has today assigned provisional ratings to the following classes of notes issued by Credit Acceptance Auto Loan Trust 2016-3:

-- $227,500,000 Series 2016-3 Notes, Class A rated AAA (sf)
-- $67,900,000 Series 2016-3 Notes, Class B rated AA (sf)
-- $54,600,000 Series 2016-3 Notes, Class C rated A (sf)

The ratings are based on a review by DBRS of the following analytical considerations:
(1) Transaction capital structure, ratings and form and sufficiency of available credit enhancement.
-- Credit enhancement is in the form of overcollateralization, subordination, amounts held in the reserve fund and excess spread. Credit enhancement levels are sufficient to support the DBRS-expected cumulative net loss (CNL) assumption under various stress scenarios.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms in which they have invested. For this transaction, the rating addresses the payment of timely interest on a monthly basis and principal by the final scheduled distribution date.
-- The transaction includes triggers that act to mitigate deterioration in the performance of the collateral during the reinvestment period and would result in an early amortization of the bonds.
-- DBRS assumed three months seasoning credit in determining its expected CNL rate. While adjusting the CNL for seasoning credit is not typical for only three months, it was appropriate in this transaction since there is a 24-month revolving period and a minimum three-month seasoning requirement as an eligibility criteria.

(2) The Transaction parties’ capabilities with regards to originations, underwriting and servicing.
-- Credit Acceptance Corporation (CAC) has a long and successful track record of achieving consistent loan performance in varying economic and competitive environments. The senior management team has also spent a significant amount of time with Credit Acceptance.
-- Wells Fargo Bank, N.A. (Wells Fargo; rated AA (high) and R-1 (high) with Stable trends by DBRS) is an experienced auto loan servicer and is backup servicer on this transaction. Wells Fargo receives a monthly data file and reconciles the data with the servicing certificate in order to maintain the accuracy of the servicing reports.

(3) Review of the legal structure and presence of legal opinions (to be provided), which will address the true sale of the assets to the Issuer, the non-consolidation of the Issuer with CAC, that the trust has a valid first-priority security interest in the collateral and consistency with the DBRS “Legal Criteria for U.S. Structured Finance” methodology.

The Transaction represents the 29th securitization by CAC since 1998. The collateral consists of Dealer Advances as well as purchased consumer notes.

Proposed Class A credit enhancement as a percentage of performing consumer notes principal balance is 64.1% and consists of overcollateralization (43.1%), subordination (19.9%) and a reserve account (1.1%).
Proposed Class B credit enhancement as a percentage of performing consumer notes principal balance is 53.1% and consists of overcollateralization (43.1%), subordination (8.9%) and a reserve account (1.1%).
Proposed Class C credit enhancement as a percentage of performing consumer notes principal balance is 44.2% and consists of overcollateralization (43.1%) and a reserve account (1.1%).

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodology is Rating U.S. Retail Auto Loan Securitizations, which can be found on our website under Methodologies.

The rated entity or its related entities did participate in the rating process. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities.

Please see attached appendix for additional information regarding sensitivity of assumptions used in the rating process.

The full report providing additional analytical detail is available by clicking on the link under Related Research at the right of the screen or by contacting us at info@dbrs.com.