DBRS Morningstar Finalizes Provisional Ratings on United Auto Credit Securitization Trust 2022-1

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the following classes of notes issued by United Auto Credit Securitization Trust 2022-1 (UACST 2022-1 or the Issuer):

-- $144,900,000 Class A Notes at AAA (sf)
-- $38,220,000 Class B Notes at AA (high) (sf)
-- $37,420,000 Class C Notes at A (high) (sf)
-- $41,400,000 Class D Notes at BBB (sf)
-- $34,230,000 Class E Notes at BB (sf)

The ratings are based on DBRS Morningstar’s review of the following analytical considerations:

(1) Transaction capital structure, proposed ratings, and form and sufficiency of available credit enhancement.
-- Credit enhancement is in the form of overcollateralization (OC), subordination, amounts held in the reserve fund, and excess spread. Credit enhancement levels are sufficient to support the DBRS Morningstar-projected 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 under which they have invested. For this transaction, the ratings address the timely payment of interest on a monthly basis and principal by the legal final maturity date.

(2) The DBRS Morningstar CNL assumption is 19.60% based on the cut-off date pool composition.

(3) The transaction assumptions consider DBRS Morningstar’s baseline macroeconomic scenarios for rated sovereign economies, available in its commentary “Baseline Macroeconomic Scenarios For Rated Sovereigns December 2021 Update,” published on December 9, 2021. These baseline macroeconomic scenarios replace DBRS Morningstar’s moderate and adverse pandemic scenarios, which were first published in April 2020. The baseline macroeconomic scenarios reflect the view that recent Coronavirus Disease (COVID-19) pandemic-related developments, particularly the new omicron variant with subsequent restrictions, combined with rising inflation pressures in some regions, may damp near-term growth expectations in coming months. However, DBRS Morningstar expects the baseline projections will continue to point to an ongoing, gradual recovery.

(4) United Auto Credit Corporation’s (UACC or the Company) capabilities with regard to originations, underwriting, and servicing and the existence of an experienced and capable backup servicer.
-- DBRS Morningstar has performed an operational risk review of UACC and considers the entity an acceptable originator and servicer of subprime automobile loan contracts with an acceptable backup servicer.
-- The Company’s senior management team has considerable experience and a successful track record within the auto finance industry.
-- UACC successfully consolidated its business into a centralized servicing platform and consolidated originations into two regional buying centers. The Company retained experienced managers and staff at the servicing center and buying centers.
-- UACC continues to evaluate and fine-tune its underwriting standards as necessary. The Company has a risk management system allowing centralized oversight of all underwriting and substantial technology systems, which provide daily metrics on all originations, servicing, and collections of loans.

(5) The credit quality of the collateral and performance of the Company’s auto loan portfolio.
-- UACC originates collateral that generally has shorter terms, higher down payments, lower book values, and higher borrower income requirements than some other subprime auto loan originators.

(6) The legal structure and presence of legal opinions, which address the true sale of the assets to the Issuer, the nonconsolidation of the special-purpose vehicle with UACC, 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.

UACC is a specialty finance company that has been engaged in the subprime automobile finance business since 1996. UACC purchases motor vehicle retail installment sales contracts from franchise and independent automobile dealerships throughout the U.S.

The UACST 2022-1 transaction represents the 20th ABS securitization completed in UACC’s history and offers both senior and subordinate rated securities. The receivables securitized in UACST 2022-1 are subprime automobile loan contracts secured primarily by used automobiles, light-duty trucks, and vans.

The rating on the Class A Notes reflects 56.00% of initial hard credit enhancement provided by the subordinated notes in the pool, the reserve fund (1.50% as a percentage of the initial collateral balance), and OC (7.00% of the total pool balance). The ratings on the Class B, C, D, and E Notes reflect 44.00%, 32.25%, 19.25%, and 8.50% of initial hard credit enhancement, respectively. Additional credit support may be provided from excess spread available in the structure.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

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

The principal methodology is Rating U.S. Retail Auto Loan Securitizations (May 10, 2021), which can be found on www.dbrsmorningstar.com under Methodologies & Criteria.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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.dbrsmorningstar.com or contact us at [email protected].

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