DBRS Morningstar Assigns Provisional Ratings to United Auto Credit Securitization Trust 2023-1

DBRS, Inc. (DBRS Morningstar) assigned provisional ratings to the following classes of notes to be issued by United Auto Credit Securitization Trust 2023-1 (UACST 2023-1 or the Issuer):

-- $124,840,000 Class A Notes at AAA (sf)
-- $53,850,000 Class B Notes at AA (sf)
-- $35,080,000 Class C Notes at A (sf)
-- $37,530,000 Class D Notes at BBB (sf)
-- $24,480,000 Class E Notes at BB (sf)

The provisional ratings are based on DBRS Morningstar’s review of the following analytical considerations:

(1) Transaction capital structure, ratings, and form and sufficiency of available credit enhancement.
-- Credit enhancement is in the form of overcollateralization (OC), 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 in which they have invested. For this transaction, the ratings address the payment of timely interest on a monthly basis and principal by the legal final maturity date.

(2) The DBRS Morningstar CNL assumption is 19.50% based on the expected Cut-Off Date pool composition.

(3) The transaction assumptions consider DBRS Morningstar’s baseline macroeconomic scenarios for rated sovereign economies, available in its commentary “Baseline Macroeconomic Scenarios for Rated Sovereigns: December 2022 Update,” published on December 21, 2022. These baseline macroeconomic scenarios replace DBRS Morningstar’s moderate and adverse Coronavirus Disease (COVID-19) pandemic scenarios, which were first published in April 2020.

(4) The transaction parties’ 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 United Auto Credit Corporation (UACC) and considers the entity an acceptable originator and servicer of subprime automobile loan contracts. Additionally, the transaction has an acceptable backup servicer.
-- UACC’s senior management team has considerable experience and a successful track record within the auto finance industry.

(5) The credit quality of the collateral and performance of UACC’s auto loan portfolio.
-- UACC originates collateral which generally has shorter terms, higher down payments, lower book values, and higher borrower income requirements than some other subprime auto loan originators. However, as Vroom originations are incorporated into UACC's portfolio, the original term has gradually increased.

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

UACC is a specialty finance company that has been engaged in the subprime automobile finance business since 1996. UACC purchases motor vehicle retail installment sales contracts from franchise and independent automobile dealerships throughout the U.S.

UACST 2023-1 will represent the 22nd asset-backed securities transaction completed in UACC’s history and will offer both senior and subordinate rated securities. The receivables securitized in UACST 2023-1 will be subprime automobile loan contracts secured primarily by used automobiles, light-duty trucks, and vans.

The rating on the Class A Notes reflects 63.25% of initial hard credit enhancement provided by the subordinated notes in the pool (46.25%), the reserve fund (1.50% as a percentage of the initial collateral balance), and OC (15.50% of the total pool balance). The ratings on the Class B, C, D, and E Notes reflect 46.75%, 36.00%, 24.50%, and 17.00% of initial hard credit enhancement, respectively. Additional credit support may be provided from excess spread available in the structure.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no environmental, social, and governance factors that had a significant or relevant effect on the credit analysis.

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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (May 17, 2022).

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

The principal methodology applicable to the ratings is Rating U.S. Retail Auto Loan Securitizations (May 10, 2022; https://www.dbrsmorningstar.com/research/396623).

Other methodologies referenced in this transaction are listed at the end of this press release. These may be found at: https://www.dbrsmorningstar.com/about/methodologies.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482.

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.

DBRS, Inc.
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The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

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