(Bloomberg) — U.S. Auto Sales, a car dealer that caters to consumers regardless of their credit history, has temporarily closed its dealerships as pressures in the auto market rapidly mount.
The firm, founded in Lawrenceville, Georgia, is working on a solution to re-open its operations as soon as possible, according to a post on its website. The company, which says it offers financing for all credit levels, has several dozen locations across the southeastern part of the country.
Representatives for the firm didn’t immediately respond to a request for comment.
Financing for cars has become harder to come by as lenders tightened their underwriting standards for consumers who have burned through much of their pandemic-era savings. Capital One Financial Corp. recently announced that it’s exiting a lending business for car dealerships, citing a “more challenging economic environment.”
Pain has been particularly acute for auto lenders catering to borrowers with poor credit scores, known as “subprime” borrowers. In one example, car dealer and lender American Car Center shut down at the end of February one day after pulling a $222 million bond sale and terminated its hundreds of employees.
In addition to originating auto loans, U.S. Auto Sales has regularly turned to bond markets to raise money, packaging subprime auto loans into bonds known as securitizations for sale to institutional investors. It most recently sold a $233 million bond in June of last year.
Loans within that bond fell on the lower end of the credit spectrum, coming from borrowers with average FICO scores of 518, according to a report by Kroll Bond Rating Agency. The cutoff for a borrower whose credit is considered subprime is typically 620.
On average those borrowers had taken out loans worth more than 150% of the vehicles, with an average principal balance of $20,199 and an 18% interest rate, the report shows.
As more borrowers fall behind on payments, the loans within bonds sold by U.S. Auto have been performing worse. Late last month, Moody’s downgraded several portions of the bond it sold in 2022 as well as another it sold in 2021, after an entity connected to U.S. Auto Sales restated gross and net loss data for the underlying loan pools, according to a March 31 report. Last week, Kroll placed portions of the company’s bonds on downgrade and said it might take action on eight others.
U.S. Auto is owned by Milestone Partners, a private equity firm that focuses on leveraged buyouts and recapitalizations of middle-market businesses, according to last year’s Kroll report. A spokesperson for Milestone didn’t immediately reply to a request for comment.
U.S. Auto Sales said in its post that its affiliated loan servicing company is still accepting payments.
–With assistance from Michael Sasso.
(Updates with subprime borrowers, impact on bonds starting in fifth paragraph.)
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