DBRS Morningstar Finalizes Provisional Ratings on American Credit Acceptance Receivables Trust 2022-3

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the following classes of notes issued by American Credit Acceptance Receivables Trust 2022-3 (ACAR 2022-3 or the Issuer):

-- $128,650,000 Class A Notes at AAA (sf)
-- $27,900,000 Class B Notes at AA (high) (sf)
-- $43,400,000 Class C Notes at A (sf)
-- $44,180,000 Class D Notes at BBB (sf)
-- $18,600,000 Class E Notes at BB (sf)
-- $17,820,000 Class F Notes at B (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 on which they have invested. For this transaction, the ratings address the payment of timely interest on a monthly basis and principal by the final scheduled distribution date.

(2) ACAR 2022-3 provides for Class A, B, C, D, and E coverage multiples slightly below the DBRS Morningstar range of multiples set forth in the “Rating U.S. Retail Auto Loan Securitizations” methodology for this asset class. DBRS Morningstar believes that this is warranted, given the magnitude of expected loss and structural features of the transaction.

(3) The DBRS Morningstar CNL assumption is 25.35% based on the expected cut-off date pool composition.

(4) The transaction assumptions consider DBRS Morningstar’s baseline macroeconomic scenarios for rated sovereign economies, available in its commentary Baseline Macroeconomic Scenarios For Rated Sovereigns: June 2022 Update, published on June 29, 2022. These baseline macroeconomic scenarios replace DBRS Morningstar’s moderate and adverse Coronavirus Disease (COVID-19) pandemic scenarios, which were first published in April 2020.

(5) The consistent operational history of American Credit Acceptance, LLC (ACA or the Company) as well as the strength of the overall Company and its management team.
-- The ACA senior management team has considerable experience, with an approximate average of 18 years in banking, finance, and auto finance companies as well as an average of approximately nine years of company tenure.

(6) ACA’s operating history and its capabilities 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.
-- ACA has completed 39 securitizations since 2011, including four transactions in 2021 and two in 2022.
-- ACA maintains a strong corporate culture of compliance and a robust compliance department.

(7) The credit quality of the collateral and the consistent performance of ACA’s auto loan portfolio.
-- Availability of considerable historical performance data and a history of consistent performance on the ACA portfolio.
-- The statistical pool characteristics include the following: the pool is seasoned by approximately six months and contains ACA originations from Q2 2013 through Q2 2022, the weighted-average (WA) remaining term of the collateral pool is approximately 65 months, and the WA FICO score of the pool is 543.

(8) The Company indicated that it may be subject to various consumer claims and litigation seeking damages and statutory penalties. Some litigation against ACA could take the form of class-action complaints by consumers; however, the Company indicated that there is no material pending or threatened litigation.

(9) The legal structure and presence of legal opinions which address the true sale of the assets to the Issuer, the nonconsolidation of each of the depositor and the Issuer with ACA, that the Issuer has a valid first-priority security interest in the assets, and the consistency with the DBRS Morningstar “Legal Criteria for U.S. Structured Finance.”

(10) ACAR 2022-3 provides for the 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.

ACA is an independent full-service automotive financing and servicing company that provides (1) financing to borrowers who do not typically have access to prime credit-lending terms for the purchase of late-model vehicles and (2) refinancing of existing automotive financing.

The ACAR 2022-3 transaction represents the 40th securitization completed by ACA since 2011 and offers both senior and subordinate rated securities. The receivables securitized in ACAR 2022-3 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 59.50% of initial hard credit enhancement provided by the subordinated notes in the pool, the reserve fund (1.00% as a percentage of the initial collateral balance), and OC (9.50% of the total pool balance). The ratings on the Class B, Class C, Class D, Class E, and Class F Notes reflect 50.50%, 36.50%, 22.25%, 16.25%, and 10.50% of initial hard credit enhancement, respectively. Additional credit support may be provided from excess spread available in the structure.

ESG CONSIDERATIONS
There were no Environmental/Social/Governance (ESG) factors that had a significant or relevant effect on the credit analysis.

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/396929.

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

The principal methodology is Rating U.S. Retail Auto Loan Securitizations (May 10, 2022), which can be found on 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.

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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