DBRS Morningstar Finalizes Provisional Ratings on Credit Acceptance Auto Loan Trust 2020-3

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the following classes of notes issued by Credit Acceptance Auto Loan Trust 2020-3 (the Issuer or the Transaction):

-- $428,660,000 Class A Notes at AAA (sf)
-- $109,510,000 Class B Notes at AA (sf)
-- $61,830,000 Class C Notes at A (sf)

The ratings are based on a review by DBRS Morningstar of the following analytical considerations:

(1) Transaction capital structure, proposed ratings, and form and sufficiency of available credit enhancement.
--Credit enhancement is in the form of overcollateralization (OC), subordination, amounts held in the reserve account, and excess spread. Credit enhancement levels are sufficient to support DBRS Morningstar’s expected cumulative net loss (CNL) assumptions under various stress scenarios.
--The ability of the Transaction to withstand stressed cash flow assumptions and repay investors according to the terms in which they have invested. For this Transaction, the ratings address the payment of timely interest on a monthly basis and principal by the final scheduled distribution date.
--The Transaction includes triggers intended to maintain the credit quality of the collateral during the revolving period and to test whether actual collections are consistent with forecast collections.

(2) The Transaction parties’ capabilities with regard to originations, underwriting, and servicing.
--Credit Acceptance Corporation (Credit Acceptance or CAC) has a long and successful track record of achieving consistent loan performance in varying economic and competitive environments. The senior management team has also spent a significant amount of time with Credit Acceptance.
--DBRS Morningstar performed an operational risk review of Credit Acceptance and deemed it to be an acceptable originator and servicer.
-- Wells Fargo Bank, N.A. (Wells Fargo; rated AA, Negative, and R-1 (high), Negative by DBRS Morningstar) is an experienced auto loan servicer and is the backup servicer on this Transaction. Wells Fargo receives a monthly data file and reconciles the data with the servicing certificate in order to maintain the accuracy of the servicing reports.

(3) DBRS Morningstar's projected losses include the assessment of the impact of the Coronavirus Disease (COVID-19). While considerable uncertainty remains with respect to the intensity and duration of the shock, the DBRS Morningstar-projected CNL includes an assessment of the expected impact on consumer behavior. The DBRS Morningstar CNL assumption is 26.80% based on the expected pool composition.
-- The transaction assumptions consider DBRS Morningstar’s set of macroeconomic scenarios for select economies related to the coronavirus, available in its commentary “Global Macroeconomic Scenarios: September Update,” published on September 10, 2020. DBRS Morningstar initially published macroeconomic scenarios on April 16, 2020, which have been regularly updated. The scenarios were last updated on September 10, 2020, and are reflected in DBRS Morningstar’s rating analysis. The assumptions also take into consideration observed performance during the 2008-09 financial crisis and the possible impact of stimulus.
-- The assumptions consider the moderate macroeconomic scenario outlined in the commentary, with the moderate scenario serving as the primary anchor for current ratings. The moderate scenario remains predicated on a more rapid return of confidence and a steady recovery heading into 2021.
-- The Transaction provides for Class A, B, and C coverage multiples that are slightly below the DBRS Morningstar range of multiples set forth in the criteria for this asset class. DBRS Morningstar believes that this is warranted, given the magnitude of expected loss and structural features of the transaction.

(4) The legal structure and presence of legal opinions that address the true sale of the assets to the Issuer, the nonconsolidation of the special-purpose vehicle with CAC, that the Issuer has a valid first-priority security interest in the assets, and the consistency with the DBRS Morningstar “Legal Criteria for U.S. Structured Finance.”

(5) CAC has received several subpoenas and investigative demands from different agencies. CAC states it is currently co-operating with each of these investigations. These investigations are ongoing, and DBRS Morningstar will be monitoring developments.

The rating on the Class A Notes reflects 56.88% of initial hard credit enhancement provided by subordinated notes in the pool (17.73%), the reserve account (1.24%), and OC (37.91%). The ratings on the Class B and C Notes reflect 45.55% and 39.15% of initial hard credit enhancement, respectively.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at https://www.dbrsmorningstar.com/research/357792.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is Rating U.S. Retail Auto Loan Securitizations (May 13, 2020), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press releases: https://www.dbrsmorningstar.com/research/358308.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at info@dbrsmorningstar.com.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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