DBRS Morningstar Finalizes Provisional Ratings on United Auto Credit Securitization Trust 2021-1

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the following classes of notes issued by United Auto Credit Securitization Trust 2021-1 (UACST 2021-1):

-- $122,070,000 Class A Notes rated AAA (sf)
-- $33,540,000 Class B Notes rated AA (sf)
-- $29,640,000 Class C Notes rated A (sf)
-- $29,380,000 Class D Notes rated BBB (sf)
-- $20,800,000 Class E Notes rated BB (sf)
-- $13,910,000 Class F Notes rated B (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, subordination, amounts held in the reserve fund, and excess spread. Credit enhancement levels are sufficient to support the DBRS Morningstar-projected cumulative net loss (CNL) assumption under various stress scenarios.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms under which they have invested. For this transaction, the ratings address the timely payment of interest on a monthly basis and principal by the legal final maturity date.

(2) DBRS Morningstar’s projected CNL assumption includes an assessment of how collateral performance could deteriorate because of macroeconomic stresses related to the Coronavirus Disease (COVID-19) pandemic.

(3) The transaction assumptions consider DBRS Morningstar’s set of macroeconomic scenarios for select economies related to the coronavirus pandemic, available in its commentary “Global Macroeconomic Scenarios: January 2021 Update,” published on January 28, 2021. DBRS Morningstar initially published macroeconomic scenarios on April 16, 2020, that have been regularly updated. The scenarios were last updated on January 28, 2021, 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 factors in increasing success in containment during the first half of 2021, enabling the continued relaxation of restrictions.

(4) United Auto Credit Corporation’s (UACC or the Company) capabilities with regard to originations, underwriting, and servicing and the existence of an experienced and capable backup servicer.
-- DBRS Morningstar has performed an operational risk review of UACC and considers the entity an acceptable originator and servicer of subprime automobile loan contracts with an acceptable backup servicer.
-- The Company’s senior management team has considerable experience and a successful track record within the auto finance industry.
-- UACC successfully consolidated its business into a centralized servicing platform and consolidated originations into two regional buying centers. The Company retained experienced managers and staff at the servicing center and buying centers.
-- UACC continues to evaluate and fine-tune its underwriting standards as necessary. The Company has a risk management system allowing centralized oversight of all underwriting and substantial technology systems, which provide daily metrics on all originations, servicing, and collections of loans.

(5) The credit quality of the collateral and performance of the Company’s auto loan portfolio.
-- UACC originates collateral that generally has shorter terms, higher down payments, lower book values, and higher borrower income requirements than some other subprime auto loan originators.

(6) UACST 2021-1 provides for Class F Notes with an assigned rating of B (sf). While DBRS Morningstar's “Rating U.S. Retail Auto Loan Securitizations” methodology does not set forth a range of multiples for this asset class for the B (sf) level, the analytical approach for this rating level is consistent with that contemplated by the methodology. The typical range of multiples applied in the DBRS Morningstar stress analysis for a B (sf) rating is 1.00 times (x) to 1.25x.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

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 release: 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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