S&P Assigned Ratings to UACSC 1998-A Auto Trust
16 March 1998
S&P Assigned Ratings to UACSC 1998-A Auto Trust
NEW YORK, March 13 -- Standard & Poor's today assigned its
ratings to UACSC 1998-A Auto Trust (see list below).
The ratings assigned to UACSC 1998-A Auto Trust are based on an
irrevocable surety bond issued by MBIA Insurance Corp. (MBIA, triple-'A'
claims-paying ability rating). 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 MBIA 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 'A-1'-plus assigned rating to
UACSC 1998-A Auto Trust class A-1 certificates is based on a cash flow stress
at a 0.5% Absolute Prepayment Speed (ABS)/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 March 10, 1999 distribution date.
The class I planned amortization class interest-only certificates pay
1.55% of interest per year on the notional principal amount, which initially
is scheduled to equal $183.1 million, or 80% of the initial pool balance of
$228.94 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). 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 $1.92 billion at Dec.
31, 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 approximately 3% in
the six month period between June 30, 1997 and Dec. 30, 1997 and the number of
contracts originated during the first half of fiscal 1998 declined by 21% from
the 1st half of fiscal 1997.
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. Longer-term
contracts are stressful on loan performance due to the delay in building
equity in the vehicle, which reduces recovery rates on repossessions.
In light of growing loss levels, structures on the most recent
securitizations have been modified to provide greater first loss protection,
primarily by adding to the spread account requirement and lowering the I/O
coupon rate. In 1998-A, 6.5% of reserve coverage is available to MBIA, prior
to a draw under its policy.
Collateral characteristics in the 1998-A pool are consistent with prior
deals. The mix of new/used is 20%/80% and 78% of the contracts have remaining
terms greater than 60 months. The weighted average remaining term of used
vehicle contracts is approximately eight months shorter than for new vehicle
contracts.
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 approximately 4.55% in annual weighted average excess
spread provide MBIA with sufficient protection of expected losses at an
investment-grade level, Standard & Poor's said. -- CreditWire
ASSIGNED RATINGS
UACSC 1998-A Auto Trust
$28.825 million 5.6111% class A-1
A-1+ money market automobile receivable backed certificates
$74.725 million 5.92% class A-2 automobile receivable
AAA backed certificates
$45.200 million 6.05% class A-3 automobile receivable
AAA backed certificates
$51 million 6.11% class A-4 automobile receivable backed
AAA certificates
$29.188 million 6.23% class A-5 automobile receivable
AAA backed certificates
Class I interest only automobile receivable backed
AAAr certificates
SOURCE Standard & Poor's CreditWire