Rogers-based America’s Car-Mart announced Monday (April 25) it has priced $400 million in asset-backed notes, a subprime auto loan asset-backed securitization transaction. The transaction settlement date is expected to be April 27, according to a news release.
“We are excited to diversify our funding sources by entering the securitization market,” said President and CEO Jeff Williams. “This transaction represents an important step as we prepare for continuing growth. As we look ahead, this market will offer us greater access to credit with a more efficient capital structure.”
According to Investopedia, securitization allows an issuer to design a marketable financial instrument by merging or pooling various financial assets into one group. The issuer then sells the group of repackaged assets to investors.
According to the Car-Mart news release, the notes will be issued in four classes, and the collateral will be originated by subsidiaries of the company. Kroll Bond Rating Agency is expected to rate the notes from BB- to AA-. The maturity date of the notes is set for April 20, 2029.
The news release shows that credit enhancement for the notes will comprise over-collateralization, a reserve account with an initial amount of at least 2% of the pool balance, excess interest on the receivables and the subordination of certain payments to the noteholders of less senior classes of notes.
Following are note details: Class A notes have an initial principal amount of $236 million, an initial credit enhancement of 60.7%, fixed coupon rate per year of 3.23% and preliminary rating of AA-. Class B notes have an initial principal amount of $52 million, an initial credit enhancement of 51.6%, fixed coupon rate per year of 4.47% and preliminary rating of A-. Class C notes have an initial principal amount of $74.57 million, an initial credit enhancement of 38.55%, fixed coupon rate per year of 5.48% and preliminary rating of BBB-. Class D notes have an initial principal amount of $37.43 million, an initial credit enhancement of 32%, fixed coupon rate per year of 8.58% and preliminary rating of BB-.
The notes were priced with a weighted average fixed coupon rate of 5.14% per year. The notes will be issued by ACM Auto Trust 2022-1, an indirect Car-Mart subsidiary. Car-Mart will act as the servicer for the auto loan receivables securing the notes.
The net proceeds from the notes will be used to pay debt, be deposited into a reserve account and for other general purposes.
In connection with the securitization transaction, the company has entered the fourth amendment to its Third Amended and Restated Loan and Security Agreement with BMO Harris Bank N.A., as agent for a group of lenders. The amendment allows for the sale, contribution or transfer of vehicle contracts to, and repurchases of such contracts from, an indirect special purpose subsidiary of the company in connection with a securitization transaction. The amendment also replaces LIBOR as the benchmark interest rate for borrowings under the agreement with the daily simple Secured Overnight Financing Rate and increases the unused line fee rate from 0.25% to 0.375% if the average daily amount in the preceding month is less than half of the revolver commitments.
Shares of Car-Mart (NASDAQ: CRMT) closed Monday at $84.85, up $2.02 or 2.44%. In the past 52 weeks, the stock has ranged between $72.50 and $177.45.