Kroll Bond Rating Agency (KBRA) assigns preliminary ratings to three classes of notes issued by Tricolor Auto Securitization Trust 2018-2 (TAST 2018-2), an auto loan ABS transaction.
Tricolor Auto Acceptance, LLC. (Tricolor or the Company) is a used vehicle retailer and buy here-pay here” auto finance company that has been in business since 2007 and focuses on the underserved Hispanic market. The Company is led by founder and CEO Daniel Chu who currently owns 58% of the Company with the remaining 42% owned by minority investors. The Company is currently a wholly-owned indirect subsidiary of Ganas Holdings, LLC. As of September 30, 2018, Tricolor operates a total of 33 dealerships with 27 located in Texas (ten in Dallas/Fort Worth) and six in California (four in the greater Los Angeles area). Due to brand recognition, the dealerships in Texas use the Tricolor name and California dealerships use Ganas Auto Group, which is an affiliated brand of Tricolor.
This transaction, Tricolor Auto Securitization Trust 2018-2 (TAST 2018-2), represents the first rated term ABS securitization for the Company. Previously, the Company issued two unrated deals, in February 2017 and March 2018 with the February 2017 transaction being called and rolled into the March 2018 transaction. TAST 2018-2 trust will issue four classes of notes totaling almost $102.0 million collateralized by $116.3 million of automobile loans including approximately $27.3 million prefunded accounts. The automobile loans are fixed rate installment loans, made to subprime borrowers with 52% having a weighted average FICO score of 583 and 48% of obligors without a FICO score. In addition, the borrowers have an average principal balance of $17,742, weighted average interest rate of 17.68%, and weighted average original term and remaining term of 54 and 48 months, respectively.
The transaction has initial credit enhancement levels of 46.00% for the Class A Notes, 36.55% for the Class B Notes, 31.45% for the Class C Notes and 14.00% for the Class D Notes. Credit enhancement consists of excess spread, overcollateralization, subordination (in the case of the Class A, Class B, and Class C Notes) and a reserve account funded at closing. This transaction has a grantor trust structure and the underlying trust is Tricolor Auto Grantor Trust 2018-2. KBRA is rating only the Class A, Class B and Class C notes.
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KBRA applied its Global Auto Loan ABS methodology as part of its analysis of the transactions underlying collateral pool, the proposed capital structure and Tricolors historical static pool data. KBRA also conducted an operational assessment on the originator and servicer, as well as a review of the transactions legal structure and transaction documents. KBRA will also review the operative agreements and legal opinions for the transaction prior to closing.
Preliminary Ratings Assigned: Tricolor Auto Securitization Trust 2018-2
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KBRA is a full service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus, is recognized by the National Association of Insurance Commissioners as a Credit Rating Provider, and is a certified Credit Rating Agency (CRA) by the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.
Carson, Senior Director
Mikhalevsky, CFA, Associate Director
Kelley, Senior Managing Director