Credit Acceptance Auto Loan Trust 2019-3

Presale:

Credit Acceptance Auto Loan Trust 2019-3

November 7, 2019

Preliminary Ratings

Class A B C

Preliminary rating AAA (sf) AA (sf) A (sf)

Type Senior Subordinate Subordinate

Interest rate Fixed Fixed Fixed

Preliminary amount (mil. Legal final maturity $) date

237.5 Nov. 15, 2028 67.9 Jan. 16, 2029 46.3 March 15, 2029

Note: This presale report is based on information as of Nov. 7, 2019. The ratings shown are preliminary. Subsequent information may result in the assignment of final ratings that differ from the preliminary ratings. Accordingly, the preliminary ratings should not be construed as evidence of final ratings. This report does not constitute a recommendation to buy, hold, or sell securities.

PRIMARY CREDIT ANALYST

Timothy J Moran, CFA, FRM New York (1) 212-438-2440 timothy.moran @

SECONDARY CONTACT

Peter W Chang, CFA New York (1) 212-438-1505 peter.chang @

Profile

Expected closing date Collateral

Originator and servicer Seller

Issuer Indenture trustee, trust collateral agent, and backup servicer Owner trustee Initial purchasers

Nov. 21, 2019. Nonrecourse loans to dealers secured by subprime automobile installment sales contracts (dealer advances) and subprime automobile installment sales contracts (purchased loans). Credit Acceptance Corp. (BB/Stable/--), a Michigan corporation. Credit Acceptance Funding LLC 2019-3, a Delaware limited liability company whose sole member is Credit Acceptance Corp. Credit Acceptance Auto Loan Trust 2019-3. Wells Fargo Bank N.A. (A+/Stable/A-1).

U.S. Bank Trust N.A. Wells Fargo Securities LLC, BMO Capital Markets Corp., Credit Suisse Securities (USA) LLC, Fifth Third Securities Inc., and Citizens Capital Markets Inc.

Credit Enhancement Summary

Preliminary ratings and amounts (mil. $)

CAALT 2019-3

Class A - 'AAA (sf)'

237.50

Class B - 'AA (sf)'

67.90

CAALT 2019-1

247.20 83.20



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Presale: Credit Acceptance Auto Loan Trust 2019-3

Credit Enhancement Summary (cont.)

Class C - 'A (sf)'

Total debt

Revolving period (mos.)

Largest permitted dealer concentration (as a % of NBV)

NBV (i.e., balance at cut-off date of dealer advances and purchased loans) (mil. $)

Forecast collections (i.e., principal and interest) (mil. $)

Installments sales contracts (i.e., principal balance of contracts securing the NBV) (mil. $)(i)

Forecast collections to NBV

46.30 351.70

24 1.5% 439.62

654.61 802.11

1.49

Relative to NBV

Overcollateralization (mil. $)

87.92

Subordination (%)

Class A

25.98

Class B

10.53

Class C

N/A

Initial overcollateralization (%)

20.00

Reserve account(ii)

1.60

Total initial credit enhancement (%)

Class A

47.58

Class B

32.13

Class C

21.60

72.10 402.5

24 1.5% 503.14

752.80 834.49

1.50

Relative to

Relative to

forecast

installment

collections sales contracts

Relative to NBV

302.91

450.41 100.64

17.45 7.07 N/A

46.27 1.07

14.24 5.77 N/A

56.15 0.88

30.87 14.33

N/A 20.00

1.60

64.79 54.42 47.35

71.27 62.80 57.03

52.47 35.93 21.60

Relative to

Relative to

forecast

installment

collections sales contracts

350.30

431.99

20.63 9.58 N/A

46.53 1.07

18.61 8.64 N/A

51.77 0.96

68.23 57.18 47.60

71.34 61.37 52.73

(i)Performing installments sales contracts (i.e., nondefaulted principal balance of contracts securing the NBV) are $550.2 million for series 2019-3 and $672.7 million for series 2019-1. (ii)The reserve account amount is 2% of the rated note balance, nondeclining. CAALT--Credit Acceptance Auto Loan Trust. NBV--Net book value. N/A--Not applicable.

Rationale

The preliminary ratings assigned to Credit Acceptance Auto Loan Trust 2019-3's (CAALT 2019-3's) asset-backed notes reflect:

- The availability of approximately 58.9%, 51.1%, and 45.6% credit support for the class A, B, and C notes, respectively, which is based on stressed cash flow scenarios, including excess spread, in respect of the installment sales contracts. These provide coverage of more than 2.50x, 2.25x, and 1.75x our 19.75%-20.25% expected cumulative net loss range, as a percentage of the performing retail installment sales contracts, for the class A, B, and C notes, respectively. The credit support levels are commensurate with the assigned preliminary 'AAA (sf)', 'AA (sf)', and 'A



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Presale: Credit Acceptance Auto Loan Trust 2019-3

(sf)' ratings on the class A, B, and C notes, respectively (see the S&P Global Ratings' Auto Loan Expected Loss and Cash Flow Modeling sections for more information).

- Our expectation that under a moderate ('BBB') stress scenario, we do not expect our ratings on the notes to decline from our preliminary ratings, all else being equal. Our ratings stability criteria describe the outer bound of credit deterioration over three years as three rating categories in the case of 'AAA', 'AA', and 'A' rated securities (see "Methodology: Credit Stability Criteria," published May 3, 2010).

- The credit enhancement in the form of subordination, overcollateralization (O/C), a reserve account, and excess spread (see the Credit Enhancement Summary table above).

- The timely interest and principal payments made under the stressed cash flow modeling scenarios, which we believe are consistent with the assigned preliminary ratings.

- Credit Acceptance Corp.'s (CAC's) extensive securitization performance history dating back to 2003 and performance history on dealer advances dating back to 1992.

- CAC's long corporate track record and history of consistent profitability.

- The transaction's payment and legal structures, including a full turbo of the notes following a 24-month revolving period; amortization triggers tied to servicer and pool performance; and dealer concentration limits, which, if violated, end the revolving period early and cause all collections to be paid full turbo to the notes sequentially.

Changes From The Series 2019-1 Transaction

The credit enhancement, collateral composition, and structural changes from the last rated series, 2019-1, are detailed below. In our view, these changes are not material and we did not adjust our expected cumulative net loss or ratings-specific stressed loss level based on the changes.

The credit enhancement changes from the series 2019-1 transaction, as a percentage of the dealer and purchased loan advances' initial net book value (NBV), include:

- Total hard credit enhancement for the class A and B notes decreased due to a decrease in their subordination, as the class A notes comprise a larger percentage of the NBV at the expense of the Class B and C notes. The enhancement remains sufficient for the voted preliminary ratings;

- Total class A and B credit enhancement decreased to 47.58% and 32.13% from 52.47% and 35.93%, respectively;

- The class A and B subordination decreased to 25.98% and 10.53% from 30.87% and 14.33%, respectively.

The collateral composition changes from the series 2019-1 transaction pertaining to the dealer advances include:

- The dollar amount of dealer advances securitized decreased to $307.8 million from $353.1 million. This is stable at approximately 70% as a percentage of the NBV of the pool;

- The number of dealers decreased to 754 from 972, partially as a result of the dealer loan portion of the pool having longer seasoning and therefore, there is more time for dealer advances to reach the 100-loan threshold and close;

- The number of dealer advances decreased to 966 from 1,176;



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Presale: Credit Acceptance Auto Loan Trust 2019-3

- The top dealer concentration increased to 1.11% from 1.03% but still remains below the 1.50% maximum dealer concentration of the NBV;

- The top 10 dealer concentrations increased to 9.11% from 8.07%; - The top state concentration remained in Michigan and increased to 13.59% from 12.68%; and - The top 10 state concentrations increased to 65.10% from 63.12%.

The collateral composition changes from the series 2019-1 transaction pertaining to the purchased loans' aggregate purchase price include:

- The purchased loan advances securitized increased slightly to 29.98% of total advances for 2019-3 from 29.81% for 2019-1;

- The number of purchased loans decreased to 13,670 from 14,411;

- The top purchased loan advance state concentration decreased to 8.03% (Ohio) from 9.46% (Ohio); and

- The top 10 purchased loan advance state concentrations remained essentially flat at 55.15% versus 55.10%.

The method used to calculate the weighted average spread rate used to test the amortization period trigger event was changed starting with the series 2019-1, and the trigger level increased to 25.0% from 16.5%. We view this change as neutral to our analysis because the change in the calculation methodology is not material since it reflects a change from an absolute difference calculation to a ratio comparison. For transactions prior to 2019-1, the trigger is calculated as the absolute difference between the pool's weighted average forecast collection rate and the weighted average advance rate, and the trigger level is set at 16.5%. Beginning with the 2019-1 transaction, the trigger is calculated as one minus the ratio of the weighted average original advance rate to the pool's weighted average forecast collection rate, and the trigger level is set at 25.0%.

Table 1 shows the absolute difference between the pool's weighted average forecast collection rate and weighted average advance rate by series, as well as the calculation of the weighted average spread rate trigger level. The absolute difference has remained constant at 19.8% but is lower than series 2018-2's 20.3%. This spread provides the deal with a margin of safety if the collateral pool experiences a lower collection rate than the forecast.

Table 1

Spread Between WA Forecast Collection Rate And WA Advance Rate At Origination(i)

2019-3

2019-1

2018-3

2018-2

CAALT 2018-1

2017-3

2017-2

2017-1

2016-3

Pool WA forecast collection rate (%) (a)

65.1

64.6

64.5

65.6

65.6

65.4

66.4

66.8

67.1

Pool WA advance rate (%) (b)

45.3

44.9

44.7

45.3

45.3

45.1

45.5

45.6

44.5

Initial spread (%) (a-b)(ii)

19.8

19.7

19.7

20.3

20.3

20.3

20.9

21.3

22.6



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Presale: Credit Acceptance Auto Loan Trust 2019-3

Table 1

Spread Between WA Forecast Collection Rate And WA Advance Rate At Origination(i) (cont.)

2019-3

2019-1

2018-3

2018-2

CAALT 2018-1

2017-3

2017-2

2017-1

2016-3

Weighted average spread rate(iii) (1-(b/a))(iv)

30.4

30.5

30.6

30.9

31.0

31.0

31.5

31.8

33.7

(i)These figures are percentages of the initial origination balances and not as of their respective cut-off dates. (ii)Reflects calculation of the weighted average spread rate as defined for transactions prior to series 2019-1. (iii)The methodology for calculating the weighted average spread changed beginning with series 2019-1. (iv)Reflects calculation of the weighted average spread rate as defined for the series 2019-1 transaction on. WA--Weighted average. CAALT--Credit Acceptance Auto Loan Trust. N/A ? not applicable

Transaction Overview

CAALT 2019-3 is CAC's third securitization in 2019, its 24th stand-alone securitization since 2008, and its 28th S&P Global Ratings credit-rated term securitization. Series 2019-2 was a private, unrated, transaction pursuant to which approximately $625.1 million of loans were contributed to a wholly-owned special purpose entity that pledged the loans to an institutional lender under a loan and security agreement. The first series 2019-3 distribution will be made on Dec. 16, 2019, and subsequent distributions will be paid on the 15th day of each month or the next business day. The class A, B, and C notes total $351.7 million. Each class will be paid a fixed-interest rate and receive principal sequentially as described in the Payment Structure section below.



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Presale: Credit Acceptance Auto Loan Trust 2019-3 Chart 1

In evaluating the credit quality of the securitized assets, we applied our "General Methodology And Assumptions For Rating U.S. Auto Loan Securitizations" criteria, published Jan. 11, 2011. Because the installment sales contracts backing the dealer advance portion of the collateral are pledged by the dealers to CAC (as opposed to being sold), we have applied dealer default assumptions to reflect the risk (regardless of how remote) of an automatic stay of these contracts' proceeds in the event of a dealer bankruptcy. (See the S&P Global Ratings' Auto Loan Expected Loss section below for further discussion of our auto loan and dealer default assumptions.)

Transaction Structure

The series 2019-3 transaction incorporates the following structural features:

- A 24-month revolving period, during which CAC will add collateral, as needed, to maintain the requisite enhancement levels.



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Presale: Credit Acceptance Auto Loan Trust 2019-3

- A revolving period that may terminate before it is scheduled to end if certain trigger events occur, at which point, early amortization would begin.

- A full turbo sequential payment structure across the rated notes at the start of the amortization period, which is scheduled to begin at the close of business on the November 2021 distribution date; however, it is subject to early amortization if a trigger event occurs.

- An initial O/C of 20% of the NBV that should build quickly during the amortization period because of the full turbo structure.

- A reserve account that will be funded with an initial deposit of 2.00% of the initial note balance. The reserve account is nondeclining throughout the deal's life.

- Approximately 70% of the initial NBV consists of dealer advances that were originated under CAC's portfolio program. The remaining 30% consists of the purchase price of the purchased loans (see the Business Model section below for more information on these programs).

- The installment sales contracts securing the dealer advances are pledged by the dealers, as opposed to being sold, to CAC. Therefore, our analysis also reflects our view of the risk, however remote, that cash flows from certain installment sales contracts could be delayed by an automatic stay if a dealer whose advances are included in the securitized pool becomes bankrupt. We assumed a certain number of bankrupt dealers at each rating category (see the S&P Global Ratings' Auto Loan Expected Loss section below).

As noted above, the full turbo structure causes O/C as a percentage of the NBV to grow quickly once a securitized pool begins to amortize. Table 2 shows the O/C levels of those deals for which data are available at various times during the first six months of amortization, as a percentage of the initial NBV. With the exception of series 2016-3, 2017-1, and 2017-2, all of the deals listed in table 2 have fully paid down. The more recent transactions, series 2017-3 through 2019-1, are still in their revolving periods.

Table 2

O/C Levels

Status

2017-2

2017-1

CAALT 2016-3 2016-2 2015-2 2015-1

Amortizing Amortizing Amortizing Paid-off Paid-off Paid-off

O/C level during revolving period (%)

20

20

20

20

20

20

O/C level during amortization period (%)

Month one

23

24

23

24

24

24

Month three

28

32

29

31

31

33

Month five Month six

N/A

39

35

39

37

41

N/A

43

39

43

40

45

O/C--Overcollateralization. CAALT--Credit Acceptance Auto Loan Trust. N/A--Not applicable.

As a corollary, the notes' swift paydown is also presented in the note factor analysis in chart 2.



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Presale: Credit Acceptance Auto Loan Trust 2019-3 Chart 2

Trigger events

Some of the performance triggers that will cause the revolving period to end and the amortization period to begin include:

- The adjusted collateral amount, namely the dealer advances and purchased loan collateral, and any amounts on deposit in the principal collections account cannot be less than the amount required to ensure at least 20% O/C for two or more business days.

- The component of the adjusted collateral amount that consists of a deposit in the principal collections account cannot exceed 5% of the adjusted collateral amount for two or more business days.

- Cumulative collections for any three consecutive periods must equal at least 90% of the cumulative forecast collections.

- The weighted average spread rate must be at least 25.0%. It is calculated as the ratio of a) the weighted average percentage that is not originally advanced (i.e., one minus the weighted average original advance rate) to b) the pool's weighted average forecast collection rate. As stated above, the series 2019-3 pool's percentage-based spread is 30.4%.

In rating this transaction, we will review the legal matters that we believe are relevant to our analysis, as outlined in our criteria.



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