KBRA Assigns Preliminary Ratings to CarNow Auto Receivables Trust 2020-1
Kroll Bond Rating Agency ("KBRA") assigns preliminary ratings to five classes of notes issued by CarNow Auto Receivables Trust 2020-1 ("CNART 2020-1"), a subprime auto asset-backed securities transaction.
The impact of COVID-19 has resulted in an economic slowdown and high unemployment, which is expected to adversely impact the performance of auto loans, including those supporting the subject transaction. Owing to this risk, KBRA increased its base case default assumptions for the subject pool in a manner that was consistent with a recent portfolio review of the sector detailed in the following report: U.S. Auto Loan and Auto Lease ABS Securities on Watch Report. The review did not result in Watch Placements on any outstanding ratings from KBRA rated CNART transactions. Due to the impact of COVID-19 on the economy, KBRA also used lower recovery rates and a longer recovery lag assumption on defaulted loans.
CarNow Auto Receivables Trust 2020-1 ("CNART 2020-1" or the "Issuer") will issue five classes of notes totaling $118.73 million that are collateralized by a pool of retail automobile contracts, made to subprime obligors that are secured by used automobiles.
The structure and collateral for CNART 2020-1 are generally similar with the previous CNART 2019-1 transaction. However, key structural differences from the prior deal include the addition of one class of notes (Class E), higher enhancement for all classes, a 0.50% increase to the reserve and no prefunding. In addition, CNART 2020-1 excludes loans that have been granted COVID related deferrals as of the cut-off date.
The transaction has initial credit enhancement levels ranging from 56.81% for the Class A notes to 21.80% for the Class E notes. The target enhancement levels for the Class A notes and Class E notes are 68.25% and 33.25%, respectively.
Byrider has been in the Buy Here Pay Here auto finance business for approximately 30 years with experience buying, reconditioning and selling vehicles and originating and servicing auto loans to lower quality subprime obligors. Byrider focuses on providing reliable, needs based transportation and financing to its customers. Byrider has a network of 142 stores, of which 32 are Company-owned and 110 are franchised as of May 31, 2020. The Company-owned stores are located predominantly in the mid-west, Indiana, Ohio, Pennsylvania, Kentucky, Tennessee, and Illinois.
KBRA applied its Global Auto Loan ABS (News - Alert) Methodology and its Structured Finance Counterparty Methodology as part of its analysis of the transaction's underlying collaeral pool, the proposed capital structure and Byrider's historical static pool data. 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 also review the operative agreements and legal opinions for the transaction prior to closing.
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.
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 is registered with ESMA as a CRA.