KBRA Assigns Preliminary Ratings to ACC Trust 2020-A

NEW YORK–(BUSINESS WIRE)–Kroll Bond Rating Agency (KBRA) assigns preliminary ratings to two classes of notes totaling $116 million issued by ACC Trust 2020-A (“ACC 2020-A”).

This transaction represents RAC King, LLC’s, (the “Company”) fourth sub-prime automobile closed-end lease ABS securitization. The primary assets of ACC 2020-A will consist of the i) SUBI certificate, which represents the beneficial interest in the specified closed-end leases of the titling trust, ii) the specified vehicles and related assets, including the right to receive payments under the leases, iii) the amounts realized from sales of the specified vehicles and iv) amounts in certain trust accounts, including the reserve account.

The economic effects of COVID-19 have caused ACC to temporarily suspend originations and has the potential to impact this transaction and ACC’s business operations, including the Company’s financial performance and liquidity, originations, credit performance and residual values of its managed portfolio. Due to the impact of COVID-19 on the economy, KBRA increased its base case default assumptions and used lower recovery rates in its analysis. The latter included a longer recovery lag assumption on defaulted leases as well as lower residual realization rates on leases as they reach maturity. KBRA believes ACC’s financial condition and disaster response plan, the transaction structure and inclusion of a backup servicer are positive attributes that may serve to mitigate the impact of the situation. KBRA will continue to monitor events surrounding the virus as they unfold and the impact on rated transactions.

The Company, through its affiliates, is an integrated used vehicle retailer that focuses on leasing low-mileage vehicles to subprime customers through vehicle lease agreements. The Company’s business model controls the entire lease and lease financing process consisting of vehicle acquisition, reconditioning, leasing, purchase option sales, underwriting, lease servicing and after-sale support.

The Company began operation in 2000 and is headquartered in Memphis, Tennessee. The Company has a managed portfolio of nearly 49,000 active customer accounts with a lease principal balance of $717.6 million as of March 31, 2020. All retail locations are company owned dealerships that employ financing only though leases (no cash sales or sale financing) and no negotiations on vehicle price or lease terms.

Credit enhancement will consist of overcollateralization, a reserve account, subordination (for the Class A notes) and excess spread. The transaction has an initial credit enhancement level of 36.97% and 29.67% for the Class A notes and Class B notes, respectively. As of the cutoff date and using a discount rate of 19.05%, the specified pool of leases has an aggregate Securitization Value of $160.0 million and an undiscounted residual value of $33.59 million, which is approximately 21% of the aggregate Securitization Value. Average original lease term, beginning balance and money factor are 49 months, $23,989 and 21%, respectively. Lease payments are due either bi-weekly, semi-monthly or monthly.

KBRA applied its Global General Rating Methodology for Asset-Backed Securities and the Global Structured Finance Counterparty Methodology and referenced the Global Auto Loan ABS Rating Methodology as part of its analysis of the transaction’s underlying collateral pool and the proposed capital structure. KBRA also conducted an operational assessment of the Company, as well as a review of the transaction’s legal structure and transaction documents. KBRA will review the operative agreements and legal opinions for the transaction prior to closing.

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Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above.

A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the U.S. Information Disclosure Form located here.

Information on the meaning of each rating category can be located here.

Further disclosures relating to this rating action are available in the U.S. Information Disclosure Form referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

About KBRA

KBRA is a full-service credit rating agency registered as an NRSRO with the U.S. Securities and Exchange Commission. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and is a certified Credit Rating Agency (CRA) with the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.



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