Oregon Community CU Sells $275 Million in Auto Loan Securities – Credit Union Times | CarTailz

Source: Shutterstock.

Oregon Community Credit Union has completed the sale of $275 million in securities backing auto loans it initiated, an advisor to the deal announced Wednesday said.

ALM First, a Dallas-based financial advisory service, said it was advising Eugene, Ore.-based OCCU on the securitization, which closed Oct. 20. ($3.5 billion in assets, 256,807 members as of September 30).

Travis Goodman, director of ALM First, said this is the credit union’s first issuance of asset-backed securities and only the fourth such securitization to be completed across the industry since the NCUA’s June 2017 Opinion Letter, which confirmed that credit unions could conduct securitisations. With OCCU sales, total revenue since 2019 is now $1.2 billion.

Travis Goodman Travis Goodman

“We have helped OCCU gain access to a broader investor market and profitable access to liquidity,” Goodman said. “In our role as trusted advisors, we help credit unions strategically manage the securitization process, provide insight into new loan pricing and execute hedging strategies to secure profits in an uncertain interest rate environment.”

OCCU receives a 1% annual fee for servicing the loans.

“This securitization benefits members by building OCCU’s financial strength,” said OCCU President/CEO Ron Neumann. “This strength allows us to serve more members and supports our ability to offer member benefits such as lower or eliminated fees, additional branches and service centers, and enhanced technologies such as digital banking and interactive ATMs.”

Ron Neuman Ron Neuman

Both Moody’s Investors Service and Standard & Poor’s gave the securities investment grade ratings.

The sale included $244.2 million of senior notes maturing October 15, 2023 through November 15, 2029, which are rated AAA and higher by S&P. The $30.8 million of subordinated notes have a term of 2029 to 2031 and are rated from AA to BBB by S&P, the lowest investment grade rating.

Factors in S&P’s rating included the credit quality of the underlying pool, which consists of direct and indirect prime auto loans with a weighted average credit score of 730 and a minimum score of 620.

Risks identified by S&P included:

  • Geographic Concentration: Oregon and Washington each account for approximately 46% of the pool’s formation.
  • High concentration of long-dated loans: Loans with maturities longer than 72 months make up 71% of the pool. About 11% of the pool consists of loans with original maturities of 73-75 months, another 60% have maturities of 76-87 months, most of which are 84-month loans.
  • High LTV Ratios: The pool had a weighted average LTV ratio of 110%, which is on the high end of its peers’ securitization pools.

S&P’s presale report showed that the average loan in the OCCU pool had an average outstanding balance of $29,442, with an original tenor of 77 months at an APR of 5.65%.

OCCU’s net charge-off rate was 0.11% in the first half of this year, compared to 0.12% in the first half of 2021. In 2016-2021, charge-offs peaked at 0.55 in 2016-2021 % peaked and then declined to 0.47% in 2019. With the pandemic, charges dropped to 0.35% in 2020 and 0.16% in 2021.

Auto loan arrears over 30 days rose to 1.15% as of June 30, from 0.63% a year earlier, “demonstrating a normalization in arrears rates versus 2020,” the S&P report said.

NCUA data shows that the OCCU’s 60-day-plus-auto default rate for all auto loans increased from 0.51% at the end of September 2021 to between 0.58% and 0.78% as of September 30.

OCCU was the 127th largest credit union in the country based on assets as of June 30, according to NCUA data, up from 138 a year earlier.

Its total auto loan balance as of June 30 was $1.5 billion, making it the 44th largest credit union auto lender in the United States. Auto loans accounted for 52% of the total loan portfolio, compared to 32% for all credit unions.

As of September 30, it held $1.7 billion in auto loans. New car loan balance was $599.6 million, up 65% year over year, while used car loans were $1.1 billion, up 62%.

Previous ABS sales by the credit union have included:

  • GTE Financial Federal Credit Union from Tampa, Florida ($2.9 billion in assets, 231,425 members) sold $175 million in November 2019.
  • Unify Financial Federal Credit Union from Torrance, California ($4.1 billion in assets, 292,992 members) sold $300 million in March 2021. ALM First also acted as advisor on this transaction.
  • PenFed Credit Union, Tysons, Virginia ($35.9 billion, 2.8 million members) sold $460.3 million in August. PenFed held $5.3 billion in auto loans as of September 30, up from $6 billion on June 30.

Leave a Comment