Morningstar DBRS Assigns Provisional Credit Ratings to United Auto Credit Securitization Trust 2024-1

DBRS, Inc. (Morningstar DBRS) assigned provisional credit ratings to the following classes of notes to be issued by United Auto Credit Securitization Trust 2024-1 (UACST 2024-1 or the Issuer):

-- $139,311,000 Class A Notes at AAA (sf)
-- $45,030,000 Class B Notes at AA (high) (sf)
-- $37,050,000 Class C Notes at A (high) (sf)
-- $54,910,000 Class D Notes at BBB (sf)
-- $39,520,000 Class E Notes at BB (high) (sf)

The provisional credit ratings are based on Morningstar DBRS' review of the following analytical considerations:

(1) Transaction capital structure, credit 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 ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms in which they have invested. For this transaction, the credit ratings address the payment of timely interest on a monthly basis and principal by the legal final maturity date.

(2) The Morningstar DBRS CNL assumption is 21.00% based on the expected Cut-Off Date pool composition.
-- The pool includes collateral originated by UACC as well as Vroom collateral.

(3) The transaction assumptions consider Morningstar DBRS' baseline macroeconomic scenarios for rated sovereign economies, available in its commentary "Baseline Macroeconomic Scenarios for Rated Sovereigns: March 2024 Update," published on March 27, 2024. These baseline macroeconomic scenarios replace Morningstar DBRS' moderate and adverse coronavirus pandemic scenarios, which were first published in April 2020.

(4) The transaction parties' capabilities with regard to originations, underwriting, and servicing and the existence of an experienced and capable backup servicer.
-- Morningstar DBRS has performed an operational risk review of United Auto Credit Corporation (UACC) and considers the entity an acceptable originator and servicer of subprime automobile loan contracts. Additionally, the transaction has an acceptable backup servicer.
-- UACC's senior management team has considerable experience and a successful track record within the auto finance industry.

(5) The credit quality of the collateral and performance of UACC's auto loan portfolio.
-- UACC originates collateral which generally has shorter terms, higher down payments, lower book values, and higher borrower income requirements than some other subprime auto loan originators. However, as Vroom originations are incorporated into UACC's portfolio, the original term has gradually increased.

(6) The legal structure and presence of legal opinions, which are expected to 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 Morningstar DBRS' "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.

UACST 2024-1 will represent the 23rd asset-backed securities transaction completed in UACC's history and will offer both senior and subordinate rated securities. The receivables securitized in UACST 2024-1 will be subprime automobile loan contracts secured primarily by used automobiles, light-duty trucks, and vans.

The credit rating on the Class A Notes reflects 64.84% of initial hard credit enhancement provided by the subordinated notes in the pool (46.44%), the reserve fund (1.50% as a percentage of the initial collateral balance), and OC (16.90% of the initial pool balance). The credit ratings on the Class B, C, D, and E Notes reflect 53.00%, 43.25%, 28.80%, and 18.40% of initial hard credit enhancement, respectively. Additional credit support may be provided from excess spread available in the structure.

Morningstar DBRS'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 Noteholders' Monthly Interest Distributable Amount and the related Outstanding 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. The associated contractual payment obligation that is not a financial obligation is the related interest on any Noteholders' Interest Carryover Amount 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.

ENVIRONMENTAL, SOCIAL, AND 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 Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings https://dbrs.morningstar.com/research/427030/morningstar-dbrs-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (January 23, 2024).

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 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.
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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 (April 15, 2024)
https://dbrs.morningstar.com/research/431204/rating-us-structured-finance-transactions

Operational Risk Assessment for U.S. ABS Servicers (March 21, 2024)
https://dbrs.morningstar.com/research/430003/operational-risk-assessment-for-us-abs-servicers

Operational Risk Assessment for U.S. ABS Originators (March 21, 2024)
https://dbrs.morningstar.com/research/430004/operational-risk-assessment-for-us-abs-originators

Legal Criteria for U.S. Structured Finance (April 15, 2024)
https://dbrs.morningstar.com/research/431205/legal-criteria-for-us-structured-finance

For more information on this credit or on this industry, visit dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.