Utah Lender Issues First Securitization Backed by Bankrupt Borrowers

Salt Lake City-based Avid Acceptance, an auto lender that focuses on loans made to consumers in bankruptcy, issued its inaugural auto securitization backed by $95 million worth of subprime assets, according to Kroll Bond Rating Agency’s presale report.

Loans made to consumers in chapter seven or chapter 13 bankruptcy consistently make up more than 90% of Avid’s originations, and they tend to perform better than typical subprime paper, Kroll said in the report.

These consumers typically have bad credit scores because of a life event that sent them into bankruptcy. They are seeking to rebuild their credit and Avid provides them that line.

“Avid has experienced better performance among bankruptcy loans than traditional subprime loans, because bankruptcy borrowers have recently discharged debt, reducing their debt burden,” Kroll noted in the report. “Bankruptcy borrowers are also restricted from filing bankruptcy again for several years.”

Additionally, bankruptcy filings provide a more detailed financial history than typical credit pulls can give and thus provide Avid a more detailed risk analysis. However, there is risk because low credit scores make consumers more susceptible to economic downturn and life events that could send them back into delinquency.

Notably, Prestige Financial Services has also concentrated on bankruptcy accounts. The subprime lender completed its 16th rated term securitization last August backed by $358.5 million in auto installment receivables, according to a presale report by DBRS. The Prestige Auto Receivables Trust 2017-1 issuance was made up of 45.6% of bankruptcy accounts up form 41.6% in the 2016-2 trust.

Avid Acceptance ended 2017 with a $102.6 million portfolio, up from $12.8 million in 2012. The company originated more than $55.5 million worth of auto loans in 2017 compared with $52.8 million the year prior.

Kroll expects a 12.7% cumulative loss rate for the pool of loans. Charge-offs across the loan portfolio weren’t provided in the report, but Kroll did mention that the lender experienced a one-time loss increase in May 2017 after it started liquidating assets more than 120 days past due. Previously, the company would work with borrowers on a case-by-case basis.

Avid Acceptance was founded in 2009 by President Curtis Rudd and Chief Executive Scott Scharman, who also serves as head of the equipment leasing firm Tetra Financial Group. Avid has a $70 million syndicated line of credit with Park National Bank, Nationwide Bank, and First Merchants Bank, which was renewed in January, according to the report. The proceeds of this securitization will be used to reduce the outstanding on Avid’s line of credit.