DBRS Morningstar Finalizes Provisional Ratings on American Credit Acceptance Receivables Trust 2023-3

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the following classes of notes issued by American Credit Acceptance Receivables Trust 2023-3 (ACAR 2023-3 or the Issuer):

-- $205,700,000 Class A Notes at AAA (sf)
-- $48,400,000 Class B Notes at AA (sf)
-- $90,200,000 Class C Notes at A (low) (sf)
-- $74,250,000 Class D Notes at BBB (low) (sf)
-- $41,800,000 Class E Notes at BB (sf)

CREDIT RATING RATIONALE/DESCRIPTION

The final 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 DBRS Morningstar CNL assumption is 28.00% based on the cut-off date pool composition and concentration limits for the prefunding collateral.
-- 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) 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 of the ACA portfolio.
-- The pool characteristics include the following: the pool is seasoned by approximately seven months and contains ACA originations from Q3 2016 through Q3 2023, the weighted-average (WA) remaining term of the collateral pool is approximately 65 months, and the WA FICO score of the pool is 547.

(3) ACAR 2023-3 provides for the Class A, B, C, and D coverage multiples being 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.

(4) The rating on the Class A Notes reflects 63.60% of initial hard credit enhancement provided by the subordinated notes in the pool (46.30%), the reserve account (1.00%), and OC (16.30%). The ratings on the Class B, C, D, and E Notes reflect 54.80%, 38.40%, 24.90%, and 17.30% of initial hard credit enhancement, respectively. Additional credit support may be provided from excess spread available in the structure.

(5) The consistent operational history of American Credit Acceptance, LLC (ACA or the Company) as well as the overall strength of the 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 ten 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 Company to be an acceptable originator and servicer of subprime automobile loan contracts.
-- ACA has completed 43 securitizations since 2011, including four transactions in 2022 and two in 2023.
-- ACA maintains a strong corporate culture of compliance and a robust compliance department.

(7) 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.

(8) The legal structure and presence of legal opinions that address the true sale of the assets to the Issuer, the nonconsolidation 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 DBRS Morningstar “Legal Criteria for U.S. Structured Finance” methodology.

(9) 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 2023 Update,” published on June 30, 2023. These baseline macroeconomic scenarios replace DBRS Morningstar’s moderate and adverse Coronavirus Disease (COVID-19) pandemic scenarios, which were first published in April 2020.

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.

DBRS Morningstar’s credit rating on the securities referenced herein addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations for each of the rated notes are the related Interest Distributable Amount and the related Note Balance.

DBRS Morningstar’s credit rating does not address non-payment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations. The associated contractual payment obligation that is not a financial obligation is related to Interest Carryover Shortfall Amount for each of the rated notes.

DBRS Morningstar’s long-term credit ratings provide opinions on risk of default. DBRS Morningstar considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued. The DBRS Morningstar short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) 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/416784/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (July 4, 2023).

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

The principal methodology applicable to the credit rating is Rating U.S. Retail Auto Loan Securitizations (May 9, 2023; https://www.dbrsmorningstar.com/research/413731)

Other methodologies referenced in this transaction are listed at the end of this press release.

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 credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

DBRS Morningstar had access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

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

DBRS, Inc.
140 Broadway, 43rd Floor
New York, NY 10005 USA
Tel. +1 212 806-3277

The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

Rating U.S. Structured Finance Transactions (February 6, 2023) https://www.dbrsmorningstar.com/research/409449/rating-us-structured-finance-transactions

Operational Risk Assessment for U.S. ABS Servicers (July 20, 2023) https://www.dbrsmorningstar.com/research/417415/operational-risk-assessment-for-us-abs-servicers

Operational Risk Assessment for U.S. ABS Originators (July 20, 2023) https://www.dbrsmorningstar.com/research/417416/operational-risk-assessment-for-us-abs-originators

Legal Criteria for U.S. Structured Finance (December 7, 2022)
https://www.dbrsmorningstar.com/research/407008/legal-criteria-for-us-structured-finance

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