Moody's Investor Service assigned a rating of B1 to Credit Acceptance Corporation's ("CACC's") $300 million senior unsecured notes due 2021. Moody's also affirmed CACC's Corporate Family and senior secured notes ratings of B1. The unsecured notes will be refinancing the company's senior secured notes. The outlook on all ratings is stable. RATINGS RATIONALE The ratings reflect CACC's history of profitable sub-prime auto lending operations, largely due to its unique risk-mitigating business model in which auto dealer clients have first loss risk in the consumer auto loans assigned to CACC, CACC's disciplined approach to pricing and its satisfactory capital levels. At the same time, the company remains vulnerable to competitive pressures in addition to adverse regulatory developments resulting from its exposure to the deep subprime consumer segment. Also, CACC's dependence on performance and confidence-sensitive wholesale funding in combination with its focus on subprime consumers introduces refinancing risk to the new bonds. The stable outlook reflects Moody's expectation that CACC will continue its operational performance and that leverage and liquidity will be appropriately managed. The unsecured notes' rating of B1 reflects the proportion of this debt class in the company's recourse debt structure, as well as the notes' terms. The ratings could be upgraded if the company demonstrates, through continued strong performance, that it can manage growth without pressure on leverage or liquidity and when regulatory uncertainty from the Consumer Financial Protection Bureau is reduced. The ratings could be downgraded if profitability, asset quality and liquidity deteriorated beyond acceptable tolerances. Furthermore, the ratings could be downgraded if CACC increases leverage beyond a Debt/Equity ratio of 2.5x.
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