Arcadia Auto Receivables Trust Rated AAA by S&P
31 March 1998
Arcadia Auto Receivables Trust Rated AAA by S&P
NEW YORK, March 30 -- Standard & Poor's today assigned its
triple-'A' rating to Arcadia Automobile Receivables Trust 1998-A's class A-2
through A-5 notes based on a surety bond provided by Financial Security
Assurance Inc. (triple-'A' claims-paying ability rating) that guarantees
timely payment of principal and interest.
At the same time, Standard & Poor's also assigned its 'A-1'-plus rating
to the trust's class A-1 notes.
The underlying transaction risk assumed by FSA has been determined to be
consistent with an investment-grade rating based on a first loss coverage
provided by annual excess spread of nearly 10% and a sound legal structure
that uses 100% of principal collections to retire the notes sequentially
beginning with the A-1 notes.
While the A-1 notes are FSA insured, this rating is not based on the
policy. Cash flow projections created with conservative assumptions are used
to test cash flow coverage of timely interest and repayment of principal by
the final maturity of March 15, 1999. These assumptions included a slow
absolute prepayment speed (ABS) of 0.5%, zero losses, high delinquencies, and
the purchase of subsequent receivables on the last day of the funding period
(May 15, 1998).
Arcadia Financial purchases, securitizes, and services consumer automobile
loans originated primarily by car dealers affiliated with major foreign and
domestic manufacturers. Its 18 regional buying centers, located in 15 states,
are currently working with a dealer network in 45 states. Servicing is
performed in its national customer service center in Minneapolis, Minn. along
with four regional collection centers located in Charlotte, N.C.; Dallas,
Texas; Denver, Colo.; and Minneapolis, Minn.
The serviced portfolio grew nearly 31% to $5 billion at Dec. 31, 1997
from $3.8 billion at Dec. 31, 1996. Loans acquired during 1997 totaled
$2.9 billion compared to $2.8 billion in 1996 and $2.1 billion in 1995. The
company continues to concentrate on increasing the proportion of classic loans
in its loan purchase mix to maximize gross interest rate spreads and lower
dealer participations. Classic loans generally involve lower quality obligors
than those approved for premier loans. Approximately 55% of all loan purchases
in 1997 were classic loans. This is a considerable increase from the 36% in
1996 and 17% share in 1995. As expected, delinquencies and net losses
increased during 1997 as classic loans grew from 29% of the portfolio at the
beginning of 1997 to 43% by year-end. Delinquencies (including unsold
repossessions) rose to 4.74% at Dec. 31, 1997 compared to 4.35% a year
earlier. Net losses were further impacted by the company's decision to sell a
larger portion of its repossessions through wholesale auctions to better
manage inventory levels and reduce delays in cash flow. During 1997, Arcadia
Financial sold 54% of its repossessions through wholesale auctions compared to
30% in 1996. Recovery rates decreased to approximately 60% compared with the
80% experienced in 1996. Annualized net losses were 3.48% for the year ended
Dec. 31, 1997, up from .99% reported for the year ended Dec. 31, 1996.
The 1998-A receivables pool is composed of $367.5 million in retail
installment sales contracts and $157.5 million (30% of total transaction size)
in the pre-funding account that will be used to originate receivables over the
next two months. The weighted average annual percentage rate is 17.16%. The
largest state concentration is Texas (19%), and the weighted average original
maturity and seasoning are 66 months and one month, respectively. The
percentage of classic loans will not exceed 66% of the total pool and new cars
comprise 11% of the pool.
Standard & Poor's expects the 1998-A pool to experience between 7% and
7.5% in cumulative net losses. Annual excess spread and stressed cash flows
provide adequate liquidity and credit coverage for the standalone 'A-1'-plus
rating on the A-1 notes. Excess spread captured in a spread account to a
requisite level along with additional excess spread provides FSA with a
multiple of expected losses that is consistent with an investment grade
rating. -- CreditWire
SOURCE Standard & Poor's CreditWire