DBRS Finalizes Provisional Ratings on Credit Acceptance Auto Loan Trust 2017-3

DBRS, Inc. (DBRS) finalized provisional ratings on the following classes of notes issued by Credit Acceptance Auto Loan Trust 2017-3 (CAALT 2017-3 or the Issuer):

-- $233,600,000 Series 2017-3 Notes, Class A rated AAA (sf)
-- $62,800,000 Series 2017-3 Notes, Class B rated AA (sf)
-- $53,600,000 Series 2017-3 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 ratings address the timely payment of interest on a monthly basis and principal by the final scheduled distribution date.
-- CAALT 2017-3 provides for Class A, B and C coverage multiples slightly below the DBRS range of multiples set forth in the criteria for this asset class. DBRS believes that this is warranted given the magnitude of expected loss and structural features of the transaction.
-- The transaction includes triggers that act to mitigate deterioration in the performance of the collateral during the reinvestment period and would result in the early amortization of the bonds.
-- DBRS assumed three months’ seasoning credit while determining the expected CNL rate. Although adjusting the CNL for seasoning credit for only three months is not typical, it was appropriate in this transaction since there is (a) a 24-month revolving period and (b) a minimum three-month seasoning requirement as an eligibility criteria.

(2) The transaction parties’ capabilities with regard 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 CAC.
-- Wells Fargo Bank, N.A. (Wells Fargo; rated AA with a Stable trend and R-1 (high) with a Stable trend by DBRS) is an experienced auto loan servicer and is the backup servicer on this transaction. Wells Fargo receives a monthly data file and reconciles that 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 that 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 DBRS’s “Legal Criteria for U.S. Structured Finance” methodology.

The transaction represents the 32nd 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 the performing consumer notes principal balance is 61.3% and consists of overcollateralization (40.3%), subordination (19.9%) and a reserve account (1.2%).

Proposed Class B credit enhancement as a percentage of the performing consumer notes principal balance is 50.6% and consists of overcollateralization (40.3%), subordination (9.1%) and a reserve account (1.2%).

Proposed Class C credit enhancement as a percentage of the performing consumer notes principal balance is 41.5% and consists of overcollateralization (40.3%) and a reserve account (1.2%).

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

The principal methodology is Rating U.S. Retail Auto Loan Securitizations, which can be found on dbrs.com 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 the attached appendix for additional information regarding the 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.