Credit Acceptance Corp. upsizes latest subprime ABS deal

Subprime auto asset-backed securitization issuances this week were characterized by fewer receivables in the collateralized loan pools and longer loan terms as subprime market share declines and affordability concerns remain. Credit Acceptance Corp. (CAC) priced a $400 million asset-backed securitization (ABS) transaction backed by subprime auto loans on Tuesday, according to Finsight , which monitors securities. CAC’s latest ABS transaction, the lender’s third subprime auto ABS deal this year, was upsized from $300 million, according to an Aug. 10 S&P Global presale report. CAC previously issued a $400 million subprime ABS deal in May. Year to date, CAC has issued $1.2 billion in subprime auto ABS deals, according to an Auto Finance News analysis of Finsight. The principal balance of installment sales contracts in CAC’s newest issuance stood at $696.8 million with 60,907 receivables, while CAC’s previous deal had a principal balance of $889.2 million with 78,206 receivables, according to the presale. Forecasted collections tallied $546.41 million on the new deal compared with $774.74 million on the May deal, according to S&P. [caption id="attachment_58330874" align="alignnone" width="1920"] © Can Stock Photo / welcomia [/caption] Santander Consumer USA (SCUSA), too, issued a $1 billion subprime auto ABS deal on Wednesday, according to Finsight. SCUSA’s latest deal includes 51,565 collateralized receivables compared with 67,975 receivables on the lender’s previous $1.1 billon deal issued in July, according to an Aug. 10 Fitch Ratings presale report of the transaction. The principal balance of the collateral loan pool stood at $1.4 million on the August deal compared with $1.7 million on the July deal. SCUSA has issued $4 billion in subprime auto ABS deals year to date compared with $6.2 billion YTD in 2022, according to an AFN analysis of Finsight. Subprime loan terms have been lengthening to combat rising monthly payments. The percentage of loans with an initial term of 61 to 72 months rose to 60.6% in CAC’s latest issuance compared with 57.8% in the prior deal’s collateral pool, according to S&P. Loans with terms of 73 to 84 months made up 0.33% of the collateral pool in CAC’s August deal compared with 0.12% in the previous transaction, according to the presale. The percentage of loans with terms greater than 72 months in SCUSA’s newest deal sat at 20.39% compared with 19.15% on the prior deal’s pool, according to Fitch. Subprime share dips The subprime ABS deals come as subprime auto loan share declines amid pullback by some auto lenders in riskier credit tiers, contributing to affordability concerns. Subprime share sat at 10.4% in July , down 10 basis points (bps) sequentially and 110 bps year over year, according to Cox Automotive . CAC recently rolled out a finance program targeting higher credit-quality borrowers, Doug Busk , chief treasury officer, said during the lender’s Aug. 1 second-quarter earnings call. “Elevated used-car prices and inventory shortages have caused it to be very difficult for the deeper subprime consumer to purchase vehicles,” he said. “The idea behind that program is to provide us with incremental volume. Now, that incremental volume is at a return that's somewhat lower than our bread-and-butter business, but still above our cost of capital.” CAC’s origination volume increased 22% year over year in Q2 on a dollar basis, while the lender’s number of new active dealers rose 51.9% to 682, according to the earnings release. “It's the competitive environment. … We're originating more higher-quality loans,” Busk said during the call. The number of “dealers has increased over the course of the last 12 months ... primarily due to those two factors.” CAC on Aug. 4 extended its $75 million revolving secured warehouse facility with Flagstar Bank by two years through Sept. 30, 2026, according to an 8-K filing with the SEC . CAC did not have an outstanding balance under the facility as of Aug. 4. Auto Finance Summit, the premier industry event for auto lending and leasing, returns October 29-31 at the Bellagio Las Vegas and features a fireside chat with F ord Credit. To learn more about the 2023 event and register, visit autofinance.live/afs/ .

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