Morningstar DBRS Assigns Provisional Ratings to American Credit Acceptance Receivables Trust 2024-1

DBRS, Inc. (Morningstar DBRS) assigned provisional credit ratings to the following classes of notes to be issued by American Credit Acceptance Receivables Trust 2024-1 (ACAR 2024-1 or the Issuer):

-- $170,660,000 Class A Notes at AAA (sf)
-- $38,870,000 Class B Notes at AA (high) (sf)
-- $76,130,000 Class C Notes at A (sf)
-- $59,800,000 Class D Notes at BBB (sf)
-- $41,400,000 Class E Notes at BB (sf)

CREDIT RATING RATIONALE/DESCRIPTION

The provisional credit ratings are based on Morningstar DBRS’ 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 Morningstar DBRS-projected cumulative net loss (CNL) assumption under various stress scenarios.
-- The Morningstar DBRS CNL assumption is 26.00% based on the expected 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 credit 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 statistical pool characteristics include the following: the pool is seasoned by approximately eight months and contains ACA originations from Q4 2016 through Q4 2023, the weighted-average (WA) remaining term of the collateral pool is approximately 62 months, and the WA FICO score of the pool is 548.

(3) ACAR 2024-1 provides for the Class A, B, C, and D coverage multiples slightly below the Morningstar DBRS range of multiples set forth in the “Rating U.S. Retail Auto Loan Securitizations” methodology for this asset class. Morningstar DBRS believes that this is warranted, given the magnitude of expected loss and structural features of the transaction.

(4) The transaction assumptions consider Morningstar DBRS’ baseline macroeconomic scenarios for rated sovereign economies, available in its commentary “Baseline Macroeconomic Scenarios for Rated Sovereigns: December 2023 Update,” published on December 19, 2023. These baseline macroeconomic scenarios replace Morningstar DBRS’ 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 overall strength of the Company and its management team.
-- The ACA senior management team has considerable experience, with an approximate average of 19 years in banking, finance, and auto finance companies as well as an average of approximately 10 years of Company tenure.

(6) ACA’s operating history and its capabilities with regard to originations, underwriting, and servicing.
-- Morningstar DBRS has performed an operational review of ACA and considers the Company an acceptable originator and servicer of subprime automobile loan contracts.
-- ACA has completed 45 securitizations since 2011, including four transactions in 2022 and four 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 are expected to 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 Morningstar DBRS’ “Legal Criteria for U.S. Structured Finance” methodology.

Morningstar DBRS’ credit rating on the securities listed below 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 noteholders Monthly Interest Distributable Amount and the related Note Balance.

Morningstar DBRS’ credit rating does not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations. For example, the associated contractual payment obligation that is not a financial obligation is interest on unpaid interest for each of the rated notes.

Morningstar DBRS’ long-term credit ratings provide opinions on risk of default. Morningstar DBRS 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 Morningstar DBRS 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.

The rating on the Class A Notes reflects 63.90% of initial hard credit enhancement provided by the subordinated notes in the pool (47.00%), the reserve account (1.00%), and OC (15.90%). The credit ratings on the Class B, C, D, and E Notes reflect 55.45%, 38.90%, 25.90%, and 16.90% of initial hard credit enhancement, respectively. Additional credit support may be provided from excess spread available in the structure.

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.

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 Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings https://dbrs.morningstar.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 ratings is Rating U.S. Retail Auto Loan Securitizations (May 9, 2023; https://dbrs.morningstar.com/research/413731/rating-us-retail-auto-loan-securitizations).

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

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.

Morningstar DBRS 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.

A provisional credit rating is not a final credit rating with respect to the above-mentioned securities and may change or be different than the final credit rating assigned or may be discontinued. The assignment of final credit ratings on the above-mentioned securities is subject to receipt by Morningstar DBRS of all data and/or information and final documentation that Morningstar DBRS deems necessary to finalize the credit ratings.

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://dbrs.morningstar.com/about/methodologies.

Rating U.S. Structured Finance Transactions (October 30, 2023) https://dbrs.morningstar.com/research/422592/rating-us-structured-finance-transactions

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

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

Legal Criteria for U.S. Structured Finance (December 7, 2023) https://dbrs.morningstar.com/research/425081/legal-criteria-for-us-structured-finance

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