Credit Acceptance Announces Completion of $294.0 Million Asset-Backed Financing
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Insights
The completion of a $294.0 million asset-backed non-recourse secured financing by Credit Acceptance Corporation represents a significant capital market transaction. This type of financing involves securitizing a pool of assets, in this case, consumer loans, to issue notes that are secured by these assets. The structure of the notes, with differing interest rates and average lives, indicates a tiered risk approach commonly seen in such financial instruments.
Investors and stakeholders should note the expected average annualized cost of approximately 7.0%, which includes initial purchasers' fees and other costs. This cost reflects the yield required by investors to compensate for the risk associated with the loans. The revolving nature of the financing for 24 months provides the company with a period of liquidity before amortization begins, which is tied to the cash flows from the underlying consumer loans.
It is also important to highlight that the company retains 4.0% of the cash flows to cover servicing expenses, with the majority being used to pay principal and interest on the notes. The transaction's design to not affect contractual relationships with dealers and preserve their rights to future payments of dealer holdback is strategic, maintaining business continuity and dealer relationships.
Assessing the impact of Credit Acceptance Corporation's asset-backed financing on the debt market requires understanding the credit quality of the underlying assets and the structuring of the notes. The interest rates ranging from 6.13% to 7.30% across the three classes of notes (A, B and C) suggest a credit spread that compensates for varying degrees of risk. The price of the notes, all slightly below par value, reflects the market's initial perception of the risk-return profile of the securities.
The non-registration of the notes under the Securities Act of 1933, relying instead on an exemption, is typical for private placements and affects the liquidity and investor base of the notes. Potential investors in similar asset-backed securities should consider the implications of such regulatory nuances on their investment strategy.
Within the auto finance industry, Credit Acceptance Corporation's approach to providing financing to consumers with poor credit history is a key differentiator. By securitizing loans, the company is able to free up capital to potentially extend more financing to its target market. The mention of improving consumers' credit scores as an ancillary benefit reflects the company's value proposition to its customer base.
The industry should consider the broader implications of such financings, as they can affect the availability of credit in the market and influence consumer behavior. Companies like Credit Acceptance Corporation play a role in expanding access to vehicle ownership, which can have ripple effects on the automotive industry and related sectors.
Southfield, Michigan , Dec. 21, 2023 (GLOBE NEWSWIRE) -- Credit Acceptance Corporation (Nasdaq: CACC) (the “Company”, “Credit Acceptance”, “we”, “our”, or “us”) announced today the completion of a
| Note Class | Amount | Average Life | Price | Interest Rate | |||||||||||
| A | $ | 158,090,000 | 2.41 years | ||||||||||||
| B | $ | 67,518,000 | 3.00 years | ||||||||||||
| C | $ | 68,392,000 | 3.40 years | ||||||||||||
The Financing will:
- have an expected average annualized cost of approximately
7.0% including the initial purchasers’ fees and other costs; - revolve for 24 months after which it will amortize based upon the cash flows on the conveyed loans; and
- be used by us to repay outstanding indebtedness and for general corporate purposes.
We will receive
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. 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.
Description of Credit Acceptance Corporation
Since 1972, Credit Acceptance has offered financing programs that enable automobile dealers to sell vehicles to consumers, regardless of their credit history. Our financing programs are offered through a nationwide network of automobile dealers who benefit from sales of vehicles to consumers who otherwise could not obtain financing; from repeat and referral sales generated by these same customers; and from sales to customers responding to advertisements for our financing programs, but who actually end up qualifying for traditional financing.
Without our financing programs, consumers are often unable to purchase vehicles or they purchase unreliable ones. Further, as we report to the three national credit reporting agencies, an important ancillary benefit of our programs is that we provide consumers with an opportunity to improve their lives by improving their credit score and move on to more traditional sources of financing. Credit Acceptance is publicly traded on the Nasdaq stock market under the symbol CACC. For more information, visit creditacceptance.com.
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