Credit Acceptance: Loan Performance Update
Summary
- Updating expected loan book performance using the company's most recently released statistics.
- Seasoned/older vintages show almost no change.
- More recent vintages show minor variations.
- Buybacks and insider sales.
About six months ago I provided a simple framework to evaluate the performance of sub-prime auto-lender/collector Credit Acceptance's (NASDAQ:CACC) loan book. Namely, in its quarterly disclosure, CACC provides detailed information about cash collections on loans by vintage year (stretching back 10 years from date of filing; all data is gleaned from the company's SEC filings). With this data, it is simply a number crunching matter to determine IRRs on cash in/out on CACC's loan book. Modeling IRRs for collections in the future using previous experience (historic collection curves) is a slightly more involved, but still quite straightforward exercise.
The purpose of this note is to provide an update on experienced as well as expected/modeled loan/collections performance based on the additional six months of data now available.
Let me start by simply providing the data, commentary will follow.
First, we have realized IRRs:
| Year | % of collections realized | Realized IRR |
| 2008 | 99.8% | 24.9% |
| 2009 | 99.9% | 37.1% |
| 2010 | 99.7% | 31.5% |
| 2011 | 99.3% | 26.3% |
| 2012 | 98.8% | 24.3% |
| 2013 | 98.1% | 21.8% |
| 2014 | 95.6% | 19.4% |
| 2015 | 87.0% | 13.7% |
As a reminder, CACC's eventual IRRs on the above vintages will be better than the stated amounts; since the calculations above only take into account cash flows that have already been realized.
This brings us to an update on modeled IRRs. For comparative purposes I have included the old modeled IRRs (from six months ago; in future updates I intend to provide the original forecaster IRR as well as the most recent two forecasts).
| Year | % of collections realized | Old forecast (NYSE:IRR) | Current forecast (IRR) |
| 2008 | 99.8% | 24.9% | 24.9% |
| 2009 | 99.9% | 37.1% | 37.1% |
| 2010 | 99.7% | 31.5% | 31.5% |
| 2011 | 99.3% | 26.4% | 26.4% |
| 2012 | 98.8% | 24.5% | 24.4% |
| 2013 | 98.1% | 22.2% | 22.3% |
| 2014 | 95.6% | 20.3% | 20.5% |
| 2015 | 87.0% | 18.7-20.3% | 18.7%-19% |
| 2016 | 70.0% | 17.2-20% | 16.5%-19% |
| 2017 | 45.9% | 16.4-20% | 16%-19% |
| 2018 | 15.4% | 14.2-20% | 14%-19% |
I hope it is clear from the data that earlier vintages (2008-2014) show almost no change between the old forecast and the most current one. Moreover, one may also opine that the vintages 2008-2015 are in the clear as far as acceptable profitability is concerned (note: the above IRR calculations overstate the IRR accruing to the company, since they exclude the substantial servicing costs in the business - one should lop off about 6%-7% from the numbers above to account for these).
More recent vintages (2015-2018) simply show a narrowing of the modeled range of outcomes. A cynic might legitimately posit that this narrowing has resulted in some deterioration in forecast IRRs, however, in my opinion the differences are too small to be deemed significant. Regardless, I do think it extremely unlikely that these more recent vintages will be able to hit the 20% IRR watermark from the halcyon days of yesteryear.
Buybacks and insider sales
Although the company's most recent 10-K is not yet available, management did reveal in the most recent earnings call that the company bought back approximately 337,000 shares in the open market at an average price of about $378 per share. This should be read in conjunction with the fact that long term insiders made substantial sales in the open market, in the past two quarters, in the range $410-$460. At pixel, CACC shares traded at about $417. The reader prone to drawing conclusions from such information is welcome to do so in the privacy of their boudoir.
Analyst’s Disclosure: I am/we are long CACC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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