DBRS Morningstar Finalizes Provisional Ratings on American Credit Acceptance Receivables Trust 2020-1

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the following classes of notes issued by American Credit Acceptance Receivables Trust 2020-1 (ACAR 2020-1):

-- $143,910,000 Class A Notes rated AAA (sf)
-- $40,170,000 Class B Notes rated AA (sf)
-- $73,120,000 Class C Notes rated A (sf)
-- $28,080,000 Class E Notes rated BB (sf)
-- $18,920,000 Class F Notes rated B (sf)

DBRS Morningstar upgraded its rating on Class D to BBB (sf) from its provisional rating of BBB (low) (sf) because of the additional credit enhancement from lower final pricing coupons compared with the estimated provisional coupons provided for its assignment of provisional ratings. As a result, DBRS Morningstar upgraded and finalized its provisional rating on the following class of notes issued by ACAR 2020-1:

-- $57,330,000 Class D Notes rated BBB (sf)

The ratings are based on DBRS Morningstar’s review of the following analytical considerations:
-- Transaction capital structure, proposed 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 Morningstar-projected expected cumulative net loss assumption under various stress scenarios.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms under which they have invested. For this transaction, the ratings address the payment of timely interest on a monthly basis and the payment of principal by the legal final maturity date.
-- ACAR 2020-1 provides for Class A, B, C, and D coverage multiples that are slightly below the DBRS Morningstar range of multiples set forth in the criteria for this asset class. DBRS Morningstar believes that this is warranted, given the magnitude of expected loss and the structural features of the transaction.
-- The capabilities of American Credit Acceptance, LLC (ACA) with regard to originations, underwriting, and servicing.
-- DBRS Morningstar has performed an operational review of ACA and considers the entity to be an acceptable originator and servicer of subprime automobile loan contracts.
-- The ACA senior management team has considerable experience, with an average of 19 years in banking, finance, and auto finance companies, as well as an average of approximately seven years of company tenure.
-- ACA has completed 29 securitizations since 2011, including four transactions in 2019.
-- ACA maintains a strong corporate culture of compliance and a robust compliance department.
-- The credit quality of the collateral and the consistent performance of ACA’s auto loan portfolio.
-- Considerable availability of historical performance data and a history of consistent performance on the ACA portfolio.

The ratings also consider the statistical pool characteristics:
-- The average remaining life of the collateral pool is approximately 66 months.
-- ACAR 2020-1 provides for Class F Notes with an assigned rating of B (sf ). While the DBRS Morningstar “Rating U.S. Retail Auto Loan Securitizations” methodology does not set forth a range of multiples for this asset class for the B (sf ) level, the analytical approach for this rating level is consistent with that contemplated by the methodology. The typical range of multiples applied in the DBRS Morningstar stress analysis for a B (sf ) rating is 1.00 times (x) to 1.25x.
-- The weighted-average FICO score of the pool is 538.
-- The legal structure and presence of legal opinions that address the true sale of the assets to the Issuer, the non-consolidation of the special-purpose vehicle with ACA, that the trust has a valid first-priority security interest in the assets, and the consistency with DBRS Morningstar’s “Legal Criteria for U.S. Structured Finance” methodology.

The ACAR 2020-1 transaction represents the 30th securitization completed by ACA since 2011 and offers both senior and subordinate rated securities. The receivables securitized in ACAR 2020-1 are subprime automobile loan contracts secured primarily by used automobiles, light-duty trucks, vans, motorcycles, and minivans.

The rating on the Class A Notes reflects the 64.10% of initial hard credit enhancement provided by the subordinated notes in the pool, the Reserve Fund (1.00%), and overcollateralization (7.30% of the total pool balance). The ratings on the Class B, Class C, Class D, Class E, and Class F Notes reflect 53.80%, 35.05%, 20.35%, 13.15%, and 8.30% of initial hard credit enhancement, respectively. Additional credit support may be provided from excess spread available in the structure.

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 & Criteria.

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

Please see the related 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 Documents below or by contacting us at [email protected].

For more information on this credit or on this industry, visit www.dbrs.com or contact us at [email protected].

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