America’s Car-Mart not only is in the buy-here, pay-here business. The company with more than 150 dealerships in 12 states now is in the securitization market, too.

On Monday, Car-Mart announced pricing of its inaugural asset-backed securitization transaction. The company priced $400 million in aggregate principal amount of asset-backed notes in a subprime auto finance asset-backed securitization transaction.

The notes will be issued in four classes, collateralized by contracts directly originated by the company’s operating subsidiaries.

Car Mart highlighted the classes have expected ratings of AA- through BB- by Kroll Bond Rating Agency (KBRA) and have a final maturity date of April 20, 2029.

The company explained credit enhancement for the notes will consist of overcollateralization, a reserve account funded with an initial amount of not less than 2.00% of the pool balance as of the cut-off date, excess interest on the receivables, and, in the case of the Class A Notes, the Class B Notes and the Class C Notes, the subordination of certain payments to the noteholders of less senior classes of notes.

Additional details related to the notes are as follows:

Initial Principal Amount Initial Credit Enhancement Fixed Coupon Rate (per annum) Preliminary KBRA Rating(1)
Class A Notes $ 236,000,000 60.70% 3.23% AA- (sf)
Class B Notes   52,000,000 51.60% 4.47% A- (sf)
Class C Notes   74,570,000 38.55% 5.48% BBB- (sf)
Class D Notes   37,430,000 32.00% 8.58% BB- (sf)
Total $ 400,000,000      
           
(1)   KBRA appends an (sf) indicator to ratings assigned to structured finance obligations.

Chart courtesy of Car-Mart.

Car-Mart explained the notes were priced with a weighted average fixed coupon rate of 5.14% per annum to the expected clean-up call. The notes will be issued by ACM Auto Trust 2022-1, an indirect subsidiary of the company.

The Issuer will be the sole obligor of the notes, and the notes will not be obligations of or guaranteed by the company or any of its other affiliates or subsidiaries, according to Car-Mart, which will act as the servicer of the auto receivables securing the notes.

Car-Mart said through a news release that the net proceeds from the notes will be used to pay outstanding debt, make the initial deposit into a reserve account, and for other general purposes.

The expected settlement date for the transaction is Thursday.

“We are excited to diversify our funding sources by entering the securitization market. This transaction represents an important step as we prepare for continuing growth,” Car-Mart president and chief executive officer Jeff Williams said. “As we look ahead, this market will offer us greater access to credit with a more efficient capital structure.”

In connection with the asset-backed securitization transaction, Car-Mart also entered into amendment No. 4 to the company’s third amended and restated loan and security agreement with BMO Harris Bank as agent for a group of lenders.

Car-Mart explained amendment No. 4 amends the agreement to permit the sale, contribution, or transfer of vehicle contracts to, and certain repurchases of such contracts from, an indirect special purpose subsidiary of the company in connection with a securitization transaction, in each case subject to specified conditions.

The amendment also replaces LIBOR as the applicable benchmark interest rate for borrowings under the agreement with the daily simple secured overnight financing rate (SOFR) and increases the unused line fee rate from 0.25% to 0.375% if the average daily amount outstanding during the preceding month is less than 50% of the revolver commitments.