KBRA Places Ratings on ACC Auto Trust 2021-A and ACC Auto Trust 2022-A on Watch Developing
18 Jul 2024 | New York
KBRA has placed the ratings of all outstanding notes issued by ACC Auto Trust 2021-A (“AUTOC 2021-A”) and ACC Auto Trust 2022-A (“AUTOC 2022-A”), two auto loan transactions, on Watch Developing due to the financial health of Automotive Credit Corporation (“ACC Auto” or the “Company”). ACC Auto is the Servicer on both transactions and according to the Company’s audited financial statements provided to KBRA, ACC Auto’s management believes there is substantial doubt about the Company’s ability to continue as a going concern due to its adoption of ASC 326 Financial Instruments and the Company’s lack of liquidity.
The table below displays the current capital structure and Watch Placements undertaken in this review. To date, the securities have received timely interest payments; however, the AUTOC 2022-A Class D has previously been lowered to CCC (sf), due to deteriorating collateral credit performance and decreased overcollateralization. This Class has an increased risk of principal loss and is susceptible to interest shortfalls in the future.
AUTOC 2021-A and AUTOC 2022-A are amortizing securitizations secured by subprime auto loans originated by Automotive Credit Corporation (“ACC Auto” or the “Company”). As Servicer, ACC Auto performs all stages of collection activities in-house, including management over the repossession process for charged-off receivables. If a Servicer Event of Default were to occur and be exercised, Vervent, Inc., as back-up servicer, would assume these responsibilities. This transfer may create delays in collections, increases in delinquencies and charge-offs, and lower overall recoveries on previously defaulted receivables.
As part of KBRA’s ongoing surveillance review, the FY 2023 financial statement, ACC Auto’s management has indicated substantial doubt about the Company’s ability to continue as a going concern due to the adoption of ASC 326 - Financial Instruments - Credit Losses. The adoption of ACC Auto’s new auditing methodology may lead to a lack of liquidity necessary to pay interest and principal on its subordinated debt obligations as they come due. In response, management developed a plan to convert the majority of the Company’s subordinated debt into preferred equity and amend covenants with existing lenders. On July 12, 2024 the Company agreed to terms for the conversion of debt subject to completion of definitive agreements.
As of the June 2024 distribution date (May 2024 collection period), the cumulative net loss, excluding repurchases, for AUTOC 2021-A and AUTOC 2022-A were 15.56% and 21.26% respectively. The current delinquency levels for AUTOC 2021-A and AUTOC 2022-A were 16.07% and 16.21% respectively and are depicted in the below chart. Furthermore, KBRA has received notice of the Company’s intent to exercise their optional repurchase, pursuant to the transaction documents, for AUTOC 2021-A on the August 15, 2024 payment date.
KBRA will continue to monitor the performance of the transactions and financial health of the Company and update and/or resolve the Watch Placements within 90 days.
This report has been updated since its initial publication date on July 18, 2024 to correct a typographical error in the title.
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