S&P Rates UACSC 1997-D Auto Trust Auto Receivable Backed Certificates
25 November 1997
S&P Rates UACSC 1997-D Auto Trust Auto Receivable Backed Certificates
NEW YORK, Nov. 25 -- Standard & Poor's today assigned its
ratings to various classes of UACSC 1997-D Auto Trust's automobile receivable
backed certificates as follows:
-- 'A-1'-plus to $33.250 million 6.4507% class A-1 money market
automobile receivable backed certificates;
-- Triple-'A' to $71.250 million 6.20% class A-2 automobile receivable
backed certificates;
-- Triple-'A' rating to $31.925 million 6.26% class A-3 automobile
receivable backed certificates;
-- Triple-'A' to $44.725 million 6.28% class A-4 automobile receivable
backed certificates;
-- Triple-'A' to $22.997 million 6.41% class A-5 automobile receivable
backed certificates; and
-- Triple-'A'r to class I interest-only automobile receivable backed
certificates.
The ratings are based on an irrevocable surety bond issued by Capital
Markets Assurance Corp. (CapMAC; triple-'A' claims-paying ability). The surety
bond guarantees timely payment of interest and principal on each distribution
date. The class A and I certificateholders will also benefit from excess
spread that will be trapped, at outset, in a spread account. Standard & Poor's
has determined that the underlying risk assumed by CapMAC is consistent with
an investment-grade rating based on a sound legal structure, a reserve
account, and first loss coverage provided by excess spread. In addition, the
short-term rating of 'A-1'-plus assigned to the class A-1 certificates is
based on a cash flow stress at a 0.5% ABS (Absolute Prepayment Speed)/0.0%
loss scenario, which ensures that the A-1 money market tranche will be paid
off within a 12-month period ending on the Nov. 10, 1998 distribution date.
The class I planned amortization class interest-only certificates pay
1.65% of interest per year on the notional principal amount, which initially
is scheduled to equal $151.03 million, or 74% of the initial pool balance of
$204.15 million. If prepayments fall within the range of 1.60% and 2.50% ABS,
the notional principal amount declines according to a schedule. If prepayments
are higher than this range, class I certificateholders may not receive their
expected yield. In this case, instead of receiving interest on the scheduled
notional principal, investors may receive interest on a lower notional
principal amount. As a result, class I certificateholders may not receive
their expected yield and could fail to recoup their invested amount. Standard
& Poor's rating does not evaluate the possibility that class I holders might
suffer a lower-than-anticipated yield and might fail to recoup their
investment as a result of prepayments exceeding 2.50% ABS. The 'r' symbol is
attached to the rating of the class I certificates to alert investors that the
certificates may experience high volatility or dramatic fluctuations in their
expected returns because of market risk.
The originator and servicer of the receivables is Union Acceptance Corp.
(UAC), the former indirect auto finance arm of Union Federal Savings Bank of
Indianapolis. UAC originates loans from franchised dealerships in 30 states,
compared to only 10 in 1994. Loan underwriting and servicing are centralized
in UAC's Indianapolis office. UAC's prime auto portfolio stood at
$1.90 billion at Sept. 30, 1997, up slightly from $1.86 billion at the end of
the fiscal period ending June 30, 1997. Growth in loan originations slowed
following the introduction of new credit scoring and origination processes in
response to rising losses and delinquencies. Loans outstanding grew by less
than 2% in the first quarter, and the number of contracts originated during
the quarter declined by 15.5% from the 1st quarter of fiscal 1997.
Net losses on UAC's portfolio of owned and securitized contracts continue
to climb, increasing to an annualized 3.17% of average outstandings through
the first quarter, from 2.40% for the fiscal year ending June 30, 1997. Rising
contract losses are due to higher frequency of defaults and a reduction in
recoveries on repossessed assets to 35.3% from approximately 40% throughout
fiscal 1997, and 50% in fiscal 1996. UAC's high concentration of longer-term
contracts is particularly stressful on loan performance, since average
principal outstandings at time of repossession are higher. In general, longer
loan terms lengthen the time it takes to build equity in the underlying
vehicle, which reduces recovery rates on repossessions.
Although UAC has tightened its credit approval process, the company
continues to rely heavily on longer-term contracts. In recent 1997
securitizations, loans with original terms greater than 60 months comprised
more than 75% of total pool balances. As a result, losses will likely continue
to grow past the traditional peak loss periods of 12-15 months. In fact, UAC's
1995 pools continue to show higher cumulative loss figures, even after 25
months of seasoning.
In light of growing loss levels, structures on the most recent
securitizations have been modified to provide greater first loss protection,
primarily by increasing excess spread. In addition, for 1997-D, an additional
200 basis points of reserve coverage has been added to provide CapMac with a
7% spread account cushion, prior to a draw under its policy.
Collateral in the 1997-D pool appears slightly stronger than in previous
securitizations during the year, with a more favorable mix of new (23%) and
used (77%) vehicles and a reduced proportion of contracts greater than 60
months (71%), versus an average of 77% for earlier 1997 transactions.
Standard & Poor's believes that cumulative net losses over the life of
this pool will be approximately 6.00% of the initial pool balance. Credit
enhancement, coupled with 4.50% in annual weighted average excess spread,
provides CapMAC with sufficient protection of expected losses at an
investment-grade level, Standard & Poor's said. -- CreditWire
SOURCE Standard & Poor's CreditWire