Securitization updates from Arivo Acceptance & Credit Acceptance
As Arivo Acceptance closed on its second securitization, paving the way for continued growth and expansion, S&P Global Ratings revised its outlook on Credit Acceptance to stable from negative after that finance company completed its latest securitization.
Last week, Credit Acceptance announced the completion of a $500.0 million asset-backed non-recourse secured financing. Pursuant to this transaction, the company said it contributed installment contracts having a value of approximately $625.1 million to a wholly-owned special purpose entity, which will transfer the paper to a trust.
The move includes three classes of notes highlighted in this chart.
Note Class | Amount | Average Life | Price | Interest Rate | |||||
A | $354,820,000 | 2.68 years | 99.99980% | 0.96% | |||||
B | $51,880,000 | 3.52 years | 99.99766% | 1.26% | |||||
C | $93,300,000 | 3.79 years | 99.96949% | 1.64% |
Credit Acceptance explained in a news release that the financing will accomplish three objectives, including:
— Have an expected annualized cost of approximately 1.4% including the initial purchasers’ fees and other costs
— revolve for 24 months after which it will amortize based upon the cash flows on the contributed contracts
— Be used by the company to repay outstanding indebtedness.
Credit Acceptance said it will receive 4.0% of the cash flows related to the underlying consumer contracts to cover servicing expenses. The remaining 96.0% — less amounts due to dealers for payments of dealer holdback — will be used to pay principal and interest on the notes as well as the ongoing costs of the financing.
The company pointed out that the Financing is structured so as not to affect its contractual relationships with dealers and to preserve the dealers’ rights to future payments of dealer holdback.
“The notes have not been and will not be registered under the Securities Act of 1933 and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements,” Credit Acceptance said in a news release.
“This news release does not and will not constitute an offer to sell or the solicitation of an offer to buy the notes. This news release is being issued pursuant to and in accordance with Rule 135c under the Securities Act of 1933,” the company went on to say.
A day later along with the revised outlook, S&P Global Ratings also affirmed its issuer credit and unsecured debt ratings at BB for Credit Acceptance.
“The outlook revision on Credit Acceptance reflects our view that its financial performance is likely to be stable over the next year,” S&P Global Ratings analysts said in their own news release. “While there could be further credit deterioration in 2021 resulting in the company having to reduce its forecast of expected cash flows, we expect the company will generate more than sufficient earnings to absorb associated loan loss provisions, even if they are higher than current levels.
“The company reported net income for 2020 in line with the previous year, excluding higher provisioning due to current expected credit losses (CECL) implementation. Also, the company reported relatively stable leverage as measured by debt to adjusted total equity despite much higher reserves for loan losses due to CECL,” analysts continued.
“Despite a stable performance, the company has reported reduced volume in 2020 of 7.5% year over year in total consumer loan units. The company has also noted it likely lost market share over the past year in what has been tight competition. Despite this, the company continues to generate ample earnings while maintaining large cushions from all of its financial covenants,” S&P Global Ratings went on to say.
More details from Arivo Acceptance
According to a news release distributed last week, Arivo Acceptance closed on Arivo Acceptance Auto Loan Receivables Trust 2021-1 (ARIVO 2021-1) on Jan. 20. The move represented the finance company’s second subprime auto loan securitization, following its first transaction in October 2019.
The company said this latest securitization included approximately $193 million of fixed-rate notes in one senior class and three subordinated classes rated Single-A down to Single-B by DBRS via a 144a private placement.
Arivo highlighted that the subprime finance company is taking a “big step toward the future” with this second securitization.
Founded in 2017, Arivo said it has been well received as a new entrant into the ABS market due to its strong growth, low loss results and experienced management team.
The 2021-1 deal led by JP Morgan and Cantor Fitzgerald increased Arivo's ABS investor base to 27 unique investors, up from 12 investors in its 2019-1 transaction.
“Proven by this transaction, Arivo has quickly achieved critical milestones as it is rare for a relatively young company to see such strong interest from the capital markets,” Arivo chief financial officer Steve Pachella said in the news release.
The securitization provides liquidity in a recently renewed $250 million warehouse facility provided by JP Morgan. This liquidity also will allow Arivo to continue the rapid expansion of its technology-driven Subprime Simplified platform.
Furthermore, Arivo noted that it is expanding into new markets throughout the country and increasing its dealership base in its current markets.
“We are pleased that our strategic Subprime Simplified business model is gaining widespread acceptance with auto dealers while simultaneously earning the capital market's confidence,” Arivo chief executive officer Robert Avery said.
“Having attained both of these objectives, I expect Arivo will double its growth in 2021 while continuing to provide high levels of service to our dealers, such as one-day funding and maintaining low delinquency and loan losses,” Avery went on to say.
To learn more about Arivo’s Subprime Simplified program, visit www.arivo.com.