Kroll Bond Rating Agency (KBRA) assigned preliminary ratings to four classes of notes issued by Octane Receivables Trust 2020-1 (OCTL 2020-1), a powersports equipment loan ABS transaction.

OCTL 2020-1 will issue four classes of notes totaling $251.26 million. The transaction is expected to be collateralized by approximately $256 million of fixed rate installment loans, made to prime and non-prime borrowers as of the closing date. The preliminary ratings reflect the initial credit enhancement levels ranging from 22.93% for the Class A notes to 2.85% for the Class D notes, which build to 29.74% and 9.66% for the Class A and Class D notes, respectively.

The financial impact of COVID-19 has resulted in an economic slowdown and high unemployment, which can adversely impact the performance of the subject pool and powersports equipment loans in general. In considering this risk, KBRA increased its base case default assumptions for the subject pool in a manner that was consistent with recent portfolio reviews of the auto sector that were highlighted in reports published on July 16, 2020 and April 21, 2020.

None of the Octane Receivables Trust 2019-1 (OCTL 2019-1) outstanding ratings were placed on Watch due to sufficient credit enhancement and, in the case of the former review, the performance of the receivables.

KBRA applied its General Global Rating Methodology for Asset-Backed Securities, Auto Loan ABS Global Rating Methodology and Global Structured Finance Counterparty Methodology as part of its analysis of the transaction’s underlying collateral pool, the proposed capital structure, Octane’s historical static pool data, 2008 powersport credit bureau performance data used by Octane to benchmark their performance, and static pool loss data for comparable automobile finance companies. KBRA also conducted an on-site operational review of Octane at its Irving, TX servicing center in October 2019 and has frequent updates with the company’s management team. KBRA will review the operative agreements and legal opinions for the transaction prior to closing.

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