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Ally Auto Assets LLC, et al. – ‘424B5’ on 1/26/17

On:  Thursday, 1/26/17, at 12:03pm ET   ·   Accession #:  1193125-17-18903   ·   File #s:  333-204844, -04

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 1/26/17  Ally Auto Assets LLC              424B5                  1:6.7M                                   Donnelley … Solutions/FA
          Ally Auto Receivables Trust 2017-1

Document/Exhibit                   Description                      Pages   Size 

 1: 424B5       Final Prospectus                                    HTML   4.02M 

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Filed Pursuant to Rule 424(b)(5)
Registration No. 333-204844

Prospectus

ALLY AUTO RECEIVABLES TRUST 2017-1

Issuing Entity (CIK: 0001679731)

$1,054,070,000 Asset Backed Notes, Class A

$23,450,000 Asset Backed Notes, Class B

$19,540,000 Asset Backed Notes, Class C

$14,520,000 Asset Backed Notes, Class D

ALLY AUTO ASSETS LLC

Depositor (CIK: 0001477336)

ALLY BANK

Sponsor (CIK: 0001601846)

ALLY FINANCIAL INC.        

Servicer (CIK: 0000040729)

Credit Enhancement and Liquidity

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these notes or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

Underwriters for the Class A Notes:

Underwriters for the Class B Notes, the Class C Notes and the Class D Notes:

The date of this prospectus is January 24, 2017.

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IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS

You should rely only on the information provided in this prospectus and any pricing supplement hereto, including the information incorporated by reference in this prospectus. We have not authorized anyone to provide you with other or different information. We are not offering the notes in any state where the offer is not permitted.

This prospectus provides information regarding the pool of receivables held by the issuing entity and the terms of your notes.

You can find definitions of the capitalized terms used in this prospectus in the “Glossary of Terms to this Prospectus,” which appears at the end of this prospectus.

The term “Ally Bank,” when used in connection with Ally Bank’s capacity as acquirer of the receivables or seller of the receivables to the depositor, includes any successors or assigns of Ally Bank in such capacity permitted pursuant to the transaction documents.

The term “Ally Financial,” when used in connection with Ally Financial Inc.’s capacity as servicer of the receivables, includes any successors or assigns of Ally Financial Inc. in such capacity permitted pursuant to the transaction documents.

Ally Auto Assets LLC has met the registration requirements of General Instruction I.A.1 of Form SF-3 by filing no later than the date of the filing of the final prospectus, and determining that each of its affiliated depositors and issuing entities have timely filed, or have cured by filing at least 90 days prior to the date hereof:

FORWARD LOOKING STATEMENTS

Whenever we use words like “intends,” “anticipates” or “expects” or similar words in this prospectus, we are making a forward-looking statement, or a projection of what we think will happen in the future. Forward-looking statements are inherently subject to a variety of circumstances, many of which are beyond our control and could cause actual results to differ materially from what we anticipate. Any forward-looking statements in this prospectus speak only as of the date of this prospectus. We do not assume any responsibility to update or review any forward-looking statement contained in this prospectus to reflect any change in our expectation about the subject of that forward-looking statement or to reflect any change in events, conditions or circumstances on which we have based any forward-looking statement, except as required by federal securities laws.

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RISK FACTORS

You should consider the following risk factors in deciding whether to purchase the offered notes.

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SUMMARY OF TRANSACTION PARTIES^*

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SUMMARY OF MONTHLY DEPOSITS TO AND WITHDRAWALS FROM ACCOUNTS*

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THE SPONSOR

Ally Bank is the sponsor of the transaction set forth in this prospectus.

Ally Bank was incorporated in 2004 under the laws of the State of Utah relating to industrial loan corporations under the name “GMAC Automotive Bank,” and changed its name to “GMAC Bank” in 2006. In December 2008, GMAC Bank converted into a Utah-chartered commercial nonmember bank and in May 2009 further changed its name to “Ally Bank.” In March 2016, Ally Bank received approval from the Board of Governors of the Federal Reserve System (“FRB”) to become a state member bank and be regulated by the FRB through the Federal Reserve Bank of Chicago. Ally Bank is subject to regulation primarily by the FRB and the Utah Department of Financial Institutions.

The sponsor is a wholly owned indirect subsidiary of Ally Financial. On December 24, 2008, and in connection with the conversion of Ally Bank into a Utah-chartered commercial nonmember bank, Ally Financial and IB Finance Holding Company, LLC (“IB Finance”) were each approved by the FRB as bank holding companies under the Bank Holding Company Act of 1956, as amended (“BHCA”). IB Finance is the direct holding company for Ally Bank and is a subsidiary of Ally Financial. As a result, Ally Financial and IB Finance are now subject to the supervision and examination of the FRB.

Ally Bank has its principal office at 6985 Union Park Center, Suite 435, Midvale, Utah 84047, Tel. No. (801) 790-5000, and administrative offices at 1100 Virginia Drive, Ft. Washington, Pennsylvania 19034.

Ally Bank provides a wide variety of automotive financial services to and through dealerships and to the customers of those dealerships. In these lines of business, Ally Bank principally finances the acquisition and resale by dealerships of various new and used automotive and non-automotive products, and acquires from those dealers instalment obligations covering retail sales and leases of new and used vehicles. Ally Bank also provides dealer equipment facilities financing, residential mortgage financing and wholesale and retail financing.

Ally Bank’s financing operations are organized into two segments—automotive and mortgage products. The products and services offered by Ally Bank’s automotive financing operations include the funding of retail instalment sale contracts, direct purchase money loans and leases, extension of term loans, dealer floorplan financing and other lines of credit.

In the retail market, Ally Bank provides vehicle financing to consumers through automotive dealerships, under the Ally Bank brand name. In most cases, Ally Bank purchases retail instalment sale contracts and lease contracts for new and used vehicles and other products from dealers.

In the wholesale market, Ally Bank finances the acquisition and resale by dealerships of various new automotive and nonautomotive products.

Ally Bank has been actively acquiring or originating assets, including retail instalment sale contracts, direct purchase money loans and leases and loans to dealers for the financing of dealer inventory, since its incorporation in 2004. Ally Bank began securitizing retail assets in 2009, wholesale assets in 2010 and lease assets in 2011.

When Ally Bank securitizes automotive retail instalment sale contracts and wholesale finance receivables, it may retain an interest in the sold assets. These interests may take the form of asset-backed securities, including senior and subordinated interests in the form of investment grade, non-investment grade or unrated securities. The EVI in the trust retained by the depositor or a majority-owned affiliate of the sponsor is described under “Credit Risk Retention” in this prospectus.

None of Ally Bank, Ally Financial or any of their respective affiliates other than the issuing entity will be obligated to make, or otherwise guarantee, any principal, interest or other payment on the notes or the certificates.

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Ally Bank has securitized its retail auto receivables in five registered offerings in 2010, five registered offerings in 2011, five registered offerings in 2012, two registered offerings in 2013, three registered offerings in 2014, two registered offerings in 2015 and three registered offerings in 2016. Ally Bank completed two private placement retail auto transactions in 2009, one private placement lease transaction in 2011, one private placement retail auto transaction in 2012, one registered lease offering in 2012, one registered lease offering in 2013, two registered lease offerings in 2014, one private placement retail auto transaction in 2014 and one registered lease offering in 2015. In those retail and lease securitizations, Ally Bank sponsored trusts and issuing entities have issued securities with an aggregate initial principal balance of approximately $38.3 billion. Ally Bank has securitized its wholesale receivables in one registered offering and four private placement transactions in 2010, four registered offerings and one private placement transaction in 2011, five registered offerings in 2012, three registered offerings in 2013, five registered offerings in 2014 and three registered offerings in 2015, with the publicly offered and privately placed notes having an aggregate initial principal balance of approximately $17.1 billion. As of September 30, 2016, none of the prior securitizations sponsored by Ally Bank have defaulted or experienced an early amortization or similar triggering event.

For further details with respect to Ally Bank’s prior retail vehicle instalment sale contract securitizations over the last five years, see “Appendix A—Static Pool Data” in this prospectus.

ACQUISITION AND UNDERWRITING

Acquisition and Underwriting

Ally Bank will acquire or originate the receivables in the ordinary course of business from participating automobile and light truck dealers in accordance with the requirements of its agreements with dealers.

Ally Bank’s process of acquiring receivables begins, in general, with the application by a customer for financing of a motor vehicle at the point of purchase from a participating dealer. Applications are initiated through websites established and maintained by the sponsor or its affiliates or third parties. Prior to December 31, 2014, applications could also have been initiated by fax.

Ally Bank and Ally Financial currently use an underwriting process in which applications are reviewed solely by Ally Financial credit underwriters. These credit underwriters use Ally Bank’s underwriting standards when evaluating applications on behalf of Ally Bank. For receivables originated prior to May 2011, all applications were initially reviewed by Ally Financial, and then applications intended for Ally Bank were reviewed separately by Ally Bank. As the underwriting is done on behalf of Ally Bank and as Ally Bank retains the right to review all contracts and require Ally Financial to purchase any that fail to meet Ally Bank’s standards, we generally refer in this prospectus to Ally Bank rather than Ally Financial when describing the underwriting process.

The application evaluation process begins with the placement of each application into one of 14 analytical categories or “segments,” based on specified aspects of the applicant’s credit profile and, in many cases, whether the related vehicle is new or used. Ally Bank then evaluates each application by applying a proprietary credit scoring algorithm, which it refers to as a “scorecard,” tailored to the applicable segment. Ally Financial designed the scorecards with assistance from a third party credit scoring company. Inputs used by the scorecards vary, but typically include, among other items: (1) severity and aging of delinquency; (2) number of credit inquiries; (3) loan-to-value ratio; and (4) payment-to-income ratio. The scorecards are reviewed and updated on a periodic basis in order to account for changes in the perceived impact of specific inputs on applicant creditworthiness. The most recent scorecard redevelopment was implemented in January 2015.

The output of the proprietary scorecard is referred to as the “Ally score.” The Ally score predicts the statistical likelihood that a loss will occur with respect to that receivable, but does not predict the performance of any receivable with certainty. Ally Bank uses the Ally score and other credit scores to sort applicants into 28 tier

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grades. Concurrently with this process, Ally Bank takes other steps to gather information regarding the applicant, such as checking lists maintained by the Office of Foreign Assets Control and performing fraud and duplicate application checks.

Once the information is gathered, Ally Bank analyzes the application to determine whether to approve it and offer to purchase the receivable. These determinations are made judgmentally on the basis of all of the information available to Ally Bank, including the following:

Ally Bank’s standards also require physical damage insurance to be in place on each financed vehicle at the time of origination.

Applications are first evaluated through an automated process. Applications are approved or declined and credit decisions are made either entirely through the automated process or through the automated process followed by manual review by a credit underwriter. Ally Bank developed its automated process in order to expedite the review of applications. The automated process uses an algorithm to approve applications with various combinations of credit factors that Ally Bank has observed over time will receive credit underwriter approval. As a result, there are many clusters of credit factors that will lead to an automated approval, rather than one or a few sets of benchmark characteristics. Final approval based solely on automated approval, without manual review, is limited to the higher quality credit tiers. However, even in the highest quality credit tier, a significant portion of approved applications are approved by credit underwriters rather than by the automated process.

For approved applications, buy rates applicable to the instalment sale contracts are assigned on the basis of the odds in accordance with pricing tiers that are managed by Ally Financial and Ally Bank.

The sponsor may use programs developed and maintained by the sponsor or third parties that would allow it to complete the entire contracting process electronically. The resulting contracts will be electronically signed by the related obligors and maintained by the sponsor or third parties in electronic form only.

Underwriting Exceptions

Ally Bank has established a series of policies, or “underwriting criteria,” that apply to the review of a credit application. The underwriting criteria contain guidelines for many attributes of an application, such as a maximum loan-to-value ratio, maximum payment-to-income ratio and minimum credit score and, for lower credit quality applicants, maximum debt-to-income ratio. For used vehicles, additional guidelines exist for vehicle model year and mileage. Some, but not all, of these guidelines will vary according to the credit tier of the applicant or the term of the proposed contract, with a higher credit tier or a shorter contract term generally having a more permissive guideline.

Credit underwriters have a limited ability to approve exceptions to the guidelines contained in the underwriting criteria. Exceptions to the credit policies must be approved by credit underwriters with appropriate credit authority. Approved applicants that do not comply with all credit guidelines typically have strong

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compensating factors that indicate a high ability of the applicant to repay the receivable, such as a co-obligor, a lower loan-to-value ratio or a shorter loan term. Examples of underwriting exceptions may include allowing a longer term or a greater ratio of payment to income, debt to income or loan to value than the standard allowances for such criteria or allowing higher mileage or an earlier model year for a used vehicle. Ally Bank monitors exceptions to the guidelines, with the goals of limiting exceptions to a small portion of approved applications and rarely permitting more than a single exception for any contract. Information regarding receivables that constituted exceptions to the guidelines is disclosed in this prospectus under “The Receivables Pool—Exceptions to Underwriting Guidelines.”

Subvention

Some receivables are originated under incentive programs sponsored by vehicle manufacturers, for which the financing rates are below the standard rates at which Ally Bank otherwise offers financing under retail contracts. Those receivables are referred to as subvented receivables.

Because the rates on the subvented receivables are lower than would otherwise be offered by Ally Bank, Ally Bank purchases those subvented receivables from the dealers and the applicable manufacturer pays the present value of the difference between the customer’s subvented rate and Ally Bank’s standard rate to Ally Financial on behalf of the dealer selling the related vehicle and Ally Financial forwards such amount to Ally Bank.

The percentage of subvented receivables in the pool is disclosed in this prospectus. See “The Receivables Pool—Composition of the Receivables Pool—(Total: New and Used).” Subvention is not taken into account by Ally Bank when determining the “odds” credit scoring.

THE SERVICER

On the closing date, Ally Financial Inc., a Delaware corporation, will be appointed the servicer of the pool of retail instalment sale contracts to be owned by the trust pursuant to the servicing agreement among the servicer, the trust and the depositor. The depositor will transfer and assign to the trust, without recourse, its entire interest in the receivables, including its rights under the pooling agreement, pursuant to the trust sale agreement between the depositor and the trust. Ally Financial also will have serviced those retail instalment sale contracts on behalf of Ally Bank prior to the transfer under the pooling agreement.

As of September 30, 2016, Ally Financial has originated over 75 securitizations of retail vehicle instalment sale contracts through a combination of registered offerings and privately placed transactions. In those securitizations, Ally Financial has issued securities with an aggregate initial principal balance of over $130 billion.

General Motors Acceptance Corporation, the predecessor of Ally Financial, was incorporated in 1919 under the New York Banking Law relating to investment companies. General Motors Acceptance Corporation relinquished that status and became a Delaware corporation on January 1, 1998. Ally Financial has its principal executive offices at 500 Woodward Avenue, Detroit, Michigan 48226. It provides services from multiple locations throughout the United States. In July 2006, General Motors Acceptance Corporation converted to a Delaware limited liability company and changed its name to GMAC LLC. In June 2009, GMAC LLC converted to a Delaware corporation and changed its name to GMAC Inc. On May 10, 2010, GMAC Inc. changed its name to Ally Financial Inc.

On November 30, 2006, General Motors Corporation sold 51% of the common equity interests of Ally Financial to a consortium of investors, led by an affiliate of Cerberus Capital Management, L.P. We refer to that transaction as the “Acquisition.”

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On December 24, 2008, and in connection with the conversion of GMAC Bank into a Utah-chartered commercial nonmember bank, Ally Financial and IB Finance were each approved by the FRB as bank holding companies under the BHCA. IB Finance is a subsidiary of Ally Financial and the direct holding company for Ally Financial’s bank depository institution, GMAC Bank, which is now known as Ally Bank. On December 23, 2013, Ally Financial was approved by the FRB as a financial holding company under the BHCA.

Since becoming a bank holding company, Ally Financial received various investments from the U.S. Department of the Treasury, the “Treasury,” in connection with the Treasury’s Supervisory Capital Assessment Program. On November 20, 2013, Ally Financial repurchased all of the Treasury’s then outstanding mandatorily convertible preferred stock. On April 15, 2014, Ally Financial closed an initial public offering of 95,000,000 shares of its common stock. The Treasury announced on December 19, 2014 that it had sold its remaining Ally Financial common stock.

Ally Financial, directly and through its subsidiaries, most notably Ally Servicing LLC, or “Ally Servicing,” and Ally Bank, services prime and non-prime automobile retail instalment sale contracts and leases acquired or originated by it and others on behalf of banks, credit unions, finance companies and securitized trusts. Ally Financial has entered into subservicing agreements with Ally Servicing and Ally Bank under which Ally Financial has engaged Ally Servicing’s and Ally Bank’s services with respect to the trust. Ally Servicing and Ally Bank act at the direction of Ally Financial and in compliance with the Servicing Agreement. For a further description of the Servicing Agreement, see “The Transfer Agreements and the Servicing Agreements” in this prospectus. In the event of any removal of Ally Financial as the servicer, Ally Servicing and Ally Bank will no longer be involved in the servicing of the receivables.

Ally Servicing is a wholly owned subsidiary of Ally Financial. Ally Servicing, a Delaware limited liability company, was originally incorporated as AccuTel, Inc. on April 8, 1999. On July 21, 2005, AccuTel changed its name to Semperian, Inc. Semperian, Inc. subsequently converted to a limited liability company. Semperian LLC changed its name to Ally Servicing LLC in August 2010.

Ally Servicing has its principal office at Ally Detroit Center, 500 Woodward Avenue, Detroit, Michigan 48226 Tel. No. 888-925-2559.

Since 1999, Ally Servicing has acted as a sub-servicer for Ally Financial, and has assumed increased servicing responsibilities over time. Currently, Ally Servicing acts as a sub-servicer for the entire U.S. portfolio of retail instalment sale contracts and leases serviced by Ally Financial. Ally Servicing performs its sub-servicing operations from centers located in Jacksonville, Florida; Shoreview, Minnesota; Lewisville, Texas; and Little Rock, Arkansas. Ally Servicing only acts as sub-servicer for Ally Financial and its affiliates and does not service assets for any other parties.

Since April 2016, Ally Bank has acted as a sub-servicer for Ally Financial. Currently, Ally Bank acts as a sub-servicer with responsibility for certain servicing activities related to the entire U.S. portfolio of retail instalment sale contracts and leases that are not delinquent and serviced by Ally Financial. Ally Bank performs its sub-servicing operations from centers located in Jacksonville, Florida; Lewisville, Texas and Detroit, Michigan. Ally Bank only acts as sub-servicer for Ally Financial and its affiliates and does not service assets for any other parties. Ally Bank began servicing assets in April 2016.

A table under “The Sponsor’s Portfolio Data—Delinquencies, Repossessions, Bankruptcies and Net Losses” sets forth the size and composition of the total portfolio of retail vehicle instalment sale contracts of Ally Bank for which Ally Financial has provided servicing in each of the last five years.

SERVICING PROCEDURES

Some of the principal functions of the servicer are tracking the balances of outstanding receivables, notifying obligors of the amounts and due dates of their required payments, communicating with obligors

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regarding their accounts, seeking to collect overdue payments and, where necessary, charging off receivables and repossessing and liquidating the related motor vehicle. Subject to provisions in the servicing agreement restricting the servicer or specifying obligations different from its customary standards, policies and procedures for a grantor trust, pursuant to its customary standards, policies and procedures, comparable to practices followed by the servicer in servicing receivables for itself or other third parties, and to its obligation under the transaction documents to make reasonable efforts to collect all payments on the receivables, the servicer may grant rebates, deferrals, alterations, amendments, adjustments or extensions on a receivable. However, if that modification of a receivable alters the amount financed, the APR or the number of originally scheduled due dates so that the last scheduled due date occurs after the final scheduled distribution date, the servicer will be obligated to purchase that receivable.

The servicer may only make certain limited extensions or deferrals. If an obligor requests an extension, the servicer may only grant an extension if it believes that such extension is necessary to preserve the value of the receivable and to prevent the receivable from going into default or from becoming further impaired and that such extension does not exceed 90 days in the aggregate during any 12-month period and 180 total days during the life of the receivable. The servicer may also provide for a deferral of payment with respect to a receivable which is in default and which the servicer believes is necessary to preserve the value of the receivable and to prevent the receivable from becoming further impaired. The servicer has the discretion to grant any modification if it delivers an opinion of counsel to the owner trustee to the effect that such modifications will not cause the trust to fail to qualify as a grantor trust for federal income tax purposes. In addition, the servicer may make modifications that are ministerial in nature, such as changing the payment due date or waiving any prepayment charges.

Subject to the restrictions on discretion because the trust is a grantor trust and any additional restrictions in the servicing agreement, the servicer is allowed, for example, without the prior consent of the depositor, the trust, the indenture trustee, the owner trustee, or any other person, to establish the means and timing for contacting obligors in respect of overdue payments, repossess the vehicles securing the receivables, deliver notices, demands, claims, complaints, responses or other documents in connection with any proceedings, execute any instruments of satisfaction or cancellation, or of partial or full release or discharge of underlying obligors, grant extensions, rebates or adjustments on a receivable and waive any prepayment, late payment, or any other fees or charges that may be collected in the ordinary course of servicing such receivables. The servicer is not liable for the exercise of discretion made in good faith and in accordance with its established servicing procedures.

The servicer maintains the account information with respect to each serviced account. That information resides on a centralized accounts receivable system that is currently maintained by HP Enterprise Services and for which Ally Financial has a right of use under a perpetual license. The servicer is also responsible for maintaining title records with respect to vehicles securing serviced contracts together with the related contract. As of the date of this prospectus, those documents are maintained for the servicer by PDP Group, Inc. at a facility in Hunt Valley, Maryland. Images of those documents are maintained on systems maintained at and accessible from locations different from the locations of the physical documents. Each contract included in the pool is marked on the applicable computer files to indicate its transfer to the trust.

The servicer will make reasonable efforts to collect all payments due on the receivables held by the trust and will, consistent with the servicing agreement, follow the collection procedures it follows for comparable motor vehicle receivables that it services for itself or others. See “Legal Aspects of the Receivables” in this prospectus.

The servicer produces and mails a monthly statement of account, or electronically delivers notification of statement availability through its website, to obligors prior to the due date of the related payment. Payments may be made either by check or through an automated clearing house (ACH) debit of the obligor’s account. If the payment remains outstanding, the servicer mails an initial notice of overdue payment to the obligor on or about the eighth day following the due date.

Obligors whose payment remains delinquent for a specified period following the payment due date are assigned to collections groups based on their risk profile, which is formulated from an algorithm tied to the

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obligor’s payment history. Most obligors initially receive an automated voice message notifying them of the delinquency. If a payment remains outstanding, most accounts are subsequently assigned to the low risk collections group, which contacts obligors using an automated dialing system. Low risk collections are outsourced to third parties with which Ally Servicing contracts for the provision of collection related services. These third parties act under the direct supervision of Ally Servicing and are required to follow the servicer’s servicing policies. Genpact has been providing this service to Ally Servicing since July 2008. In February 2010, Sykes Enterprises Incorporated, or “Sykes,” acquired ICT Group, which had been providing this service to Ally Servicing since April 2007. Alliance One, a Teleperformance company, provided this service to Ally Servicing from December 2009 to July 2015.

Based on the algorithm, responsibility for calls progresses to the early high risk collections group at differing times but generally at no later than 31 days past due. The early high risk collection teams attempt to establish contact with the obligor by telephone and continue to attempt to obtain payment. Early high risk collections are outsourced to Genpact, Sykes or Alliance One. If an account has a higher risk score, it will be transferred to an Ally Servicing collection group.

Depending on the risk profile, delinquent accounts typically progress from the early high risk collections group to the high risk collections group at 60 days past due. The high risk collection teams attempt to establish contact with the obligor by telephone and continue to attempt to obtain payment. High risk collection activity is performed by Ally Servicing.

If the servicer determines that eventual payment in full of a receivable is unlikely, the servicer will follow its normal practices and procedures to realize upon the receivable, including the repossession and disposition of the financed vehicle securing the receivable at a public or private sale, or the taking of any other action permitted by applicable law. The servicer will be entitled to receive its liquidation expenses as specified in the servicing agreement as an allowance for amounts charged to the account of the obligor, in keeping with the servicer’s customary procedures, for refurbishing and disposition of the financed vehicle and other out-of-pocket costs incurred in the liquidation. See “Certain Fees and Expenses” in this prospectus.

Accounts for which the servicer has made a determination to repossess the vehicle are referred to an outside repossession company located in the area of the obligor or in some cases, to a national provider. Those repossession companies are generally small local operations whose sole function is to repossess the related motor vehicle. In some areas, accounts issued for repossession are assigned to a service provider who oversees the repossession activity of their subcontractor. The service provider is responsible for the activity of the subcontractor. Typically, once the car is repossessed, a letter is sent to the obligor to inform them of the repossession, an affidavit of repossession is produced and title is obtained. Generally, the vehicle is then sold at auction (traditional auction or SmartAuction), although, at Ally Financial’s discretion, to maximize net proceeds, limited repairs and or refurbishing may be performed prior to sale.

The net sale proceeds are applied to reduce the balance owing by the obligor. Excess proceeds, if any, are remitted to the obligor. Deficiency balances, if any, are charged off. Following charge off, the account is assigned to the asset recovery center, located in Lewisville, Texas, for evaluation and possible further attempts to collect amounts owing by the obligor. There is an exception to that process for obligors in bankruptcy.

The retail instalment sale contracts require that each obligor on the receivables obtain physical damage insurance covering the vehicle securing each receivable. If an obligor fails to maintain insurance, the servicer may, but is not obligated to, purchase collateral protection insurance, which consists of obtaining a new policy on the obligor’s behalf. If collateral protection insurance is obtained, the servicer charges the related account in an amount equal to the cost of the insurance. Currently, the servicer does not actively monitor whether or not each obligor maintains physical damage insurance.

The securitized pool contains large numbers of individual retail instalment sale contracts entered into by obligors located throughout the United States. This factor requires that the servicer of those contracts have a

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breadth and scale of operations that may not be required to effectively service many other types of assets. In addition, the security for each contract is a motor vehicle. The processing and maintenance of title and other information related to those motor vehicles requires specific systems capabilities and experience. In addition, repossessing those assets when appropriate requires knowledge and experience as to the methods for taking possession of and retitling the motor vehicle and contacts with the network of auctioneers through which the repossessed vehicles are liquidated.

Collections

The servicer will deposit collections into the collection account held by the indenture trustee within two business days of receipt. However, the servicer may retain these amounts until the distribution date at any time that (a) the Monthly Remittance Condition is satisfied, or (b) arrangements are made which are acceptable to the rating agencies hired to rate the notes. Pending deposit into the collection account, collections may be employed by the servicer at its own risk and for its own benefit and will not be segregated from its own funds. In such case, all gains and losses resulting from the investment of those funds will be for the account of the servicer and will not alter in any respect the amount that the servicer is obligated to remit to the collection account in respect of collections on the following distribution date.

Collections made during a monthly period, other than Administrative Receivables or Warranty Receivables, which are not late fees or other similar fees or charges, will be applied to principal and interest on all of these receivables.

Collections on Administrative Receivables and Warranty Receivables, including Administrative Purchase Payments and Warranty Payments, will generally be applied in the manner described in the above paragraph.

Servicing Compensation and Payment of Expenses

On each distribution date, the servicer will receive the following servicing fees:

Servicing fees will be paid out of funds available for that purpose. The relative priority of basic servicing fees and any other servicing fees are set forth in “The Notes—Distributions.”

The basic servicing fee for each monthly period and any portion of the basic servicing fee that remains unpaid from prior distribution dates will be paid at the beginning of that monthly period out of collections for that monthly period. In addition, the servicer will retain any late fees, prepayment charges or similar fees and charges collected during a monthly period and any investment earnings on trust accounts during a monthly period.

The foregoing amounts are intended to compensate the servicer for performing the functions of a third party servicer of automobile receivables as an agent for their beneficial owner, including:

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These amounts will also compensate the servicer for its services as the administrator, including accounting for collections, furnishing monthly and annual statements to the owner trustee and the indenture trustee for distributions and generating federal income tax information for the trust, the certificateholders and the noteholders. These amounts also will reimburse the servicer for taxes, the fees of the owner trustee and the indenture trustee, accounting fees, outside auditor fees, data processing costs and other costs incurred in connection with administering the pool of receivables.

THE TRUST

The issuing entity, Ally Auto Receivables Trust 2017-1 is a statutory trust formed under the laws of the State of Delaware with a fiscal year end of December 31. The trust will be established and operated pursuant to a trust agreement dated on or before the anticipated closing date of January 31, 2017 (the “closing date”), which is the date the trust will initially issue the notes and certificates.

The trust will engage in only the following activities:

The trust’s principal offices are in Wilmington, Delaware, in care of BNY Mellon Trust of Delaware, as owner trustee at the address listed in “The Owner Trustee” below.

The property of the trust will include:

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The reserve account will be held by the indenture trustee for the benefit of the holders of the trust’s securities. The reserve account will be included in the property of the trust.

The servicer will continue to service the receivables held by the trust and will receive fees for these services. See “Servicing Procedures—Servicing Compensation and Payment of Expenses” in this prospectus. To facilitate the servicing of the receivables, the trust will authorize Ally Financial, as custodian, to retain physical possession of the receivables held by the trust and other documents relating thereto as custodian for the trust. Due to the administrative burden and expense, the certificates of title to the financed vehicles will not be amended to reflect the sale and assignment of the security interest in the financed vehicles to the depositor or the trust or the pledge of these security interests by the trust to the indenture trustee. In the absence of an amendment, the trust and the indenture trustee may not have a perfected security interest in the financed vehicles in all states.

None of the trust, the indenture trustee or the owner trustee will be responsible for the legality, validity or enforceability of any security interest in any financed vehicle. See “Legal Aspects of the Receivables” and “The Transfer Agreements and the Servicing Agreements—Sale and Assignment of Receivables” in this prospectus.

Capitalization of the Trust

The following table illustrates the capitalization of the trust as of January 1, 2017, the cutoff date, as if the issuance of the notes and the certificates had taken place on that date:

The amount shown for the certificates is the initial level of overcollateralization. The holders of the certificates will be entitled to receive amounts representing the remaining overcollateralization after repayment of amounts owing on the notes. Approximately 5% (by initial principal balance) of the Class A Notes, the Class B Notes, the Class C Notes and the Class D Notes will be retained initially by the depositor or its affiliate. The certificates are not being offered by this prospectus and will be sold in one or more private placements or retained initially by the depositor or an affiliate. The depositor or its affiliate will retain the right to sell all or a portion of the certificates (other than those held by the depositor or a majority-owned affiliate of the sponsor as part of the EVI) in one or more private placements at any time. The depositor or a majority-owned affiliate will initially hold the EVI. For a description of the EVI, see “Credit Risk Retention” in this prospectus.

THE RECEIVABLES POOL

Each receivable to be held by the issuing entity is classified as a simple interest receivable.

Payments pursuant to a simple interest receivable are allocated between finance charges and principal based on the actual date on which a payment is received. Late payments, or early payments, on a simple interest receivable may result in the obligor making a greater- or smaller-number of payments than originally scheduled. The amount of additional payments required to pay the outstanding principal balance in full generally will not exceed the amount of an originally scheduled payment. If an obligor elects to prepay a simple interest receivable in full, the obligor will not receive a rebate attributable to unearned finance charges. Instead, the obligor is required to pay finance charges only to, but not including, the date of prepayment.

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Criteria Applicable to the Selection of Receivables

The pool of receivables to be sold to the trust was selected from Ally Bank’s portfolio based on several criteria, including that each receivable:

The receivables in the pool of receivables on the closing date will be the same receivables that comprised the pool of receivables on the cutoff date.

The pool of receivables was selected from Ally Bank’s portfolio of receivables that meet the criteria described above and other administrative criteria utilized by Ally Bank from time to time. We believe that no selection procedures adverse to the noteholders were utilized in selecting the receivables in this pool of receivables. Ally Bank, as sponsor, incurred minimal internal expenses in selecting the pool of receivables. Ally Bank did not incur any third party expenses in connection with the selection of the pool of receivables.

The following tables describe the pool of receivables as of the cutoff date.

Each of the percentages and averages in the tables is computed on the basis of the amount financed of each receivable as of the cutoff date. The “Weighted Average Annual Percentage Rate of all Receivables in Pool” and “Weighted Average Annual Percentage Rate of Non-Subvented Receivables in Pool” in the following table are based on weighting by amount financed and remaining term of each receivable, each as of the cutoff date. The “Weighted Average Original Maturity” in the following table is based on weighting by original undiscounted principal balance of each receivable as of its date of origination. “Loan-to-Value Ratio” with respect to a receivable means the original undiscounted principal balance divided by the estimated vehicle value, multiplied by 100. The estimated vehicle value for a new vehicle is the dealer invoice cost of the vehicle. The estimated vehicle value for a used vehicle is the value received by Ally Financial or Ally Bank from the dealer, independently validated by Ally Financial or Ally Bank, based on a market guide, such as Blackbook, indicating the value of the vehicle and the source from which that value was determined. “Weighted Average

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Loan-to-Value Ratio” is based on a weighting by original undiscounted principal balance of each receivable as of its date of origination. A FICO score is a measurement designed by Fair, Isaac & Company and calculated by the major credit bureaus using collected information to assess credit risk. “Weighted Average FICO Score” is based on a weighting by original undiscounted principal balance of each receivable as of the cutoff date and excludes receivables with respect to which the obligor is a business account and receivables for which no FICO score is available. Of the 6,768 FICO scores excluded from the Weighted Average FICO Score, 6,626 or 97.90%, are business accounts and the remaining 142 or 2.10%, are accounts for which FICO scores are unavailable. In the table “Distribution of the Receivables Pool by FICO Score,” those excluded accounts make up the “Business Accounts and Unavailable” category. Percentages may not equal 100.00% due to rounding.

Composition of the Receivables Pool—(Total: New and Used)

Composition of the Receivables Pool—(New)

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Composition of the Receivables Pool—(Used)

Distribution of the Receivables Pool by Annual Percentage Rate—Aggregate

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Distribution of the Receivables Pool by State

The pool of receivables includes receivables originated in all 50 states and the District of Columbia. The following table sets forth the percentage of the aggregate amount financed in the states with the largest concentration of receivables. No other state accounts for more than 3.50% of the aggregate amount financed. Management believes that there are no factors unique to any state or region in which 10% or more of the receivables are located that may materially impact the trust’s ability to pay principal and interest on the notes. The following breakdown by state is based on the billing addresses of the obligors on the receivables:

Distribution of the Receivables Pool by Loan-to-Value Ratio

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Distribution of the Receivables Pool by FICO Score