Oregon Community Credit Union launches its first automotive ABS

Oregon Community Credit Union sponsors its first asset-backed securities (ABS) transaction, a $276.3 million transaction secured by a pool of direct and indirect loans on investment-grade auto loans, as well as contracts installment retail.

A range of vehicles, including light trucks, sport utility vehicles and vans, new and used, will make up the warranty pool, according to a pre-sale report from Moody’s Investors Service.

The OCCU has been in business since 1956 and has serviced the loans it has issued for more than 65 years, which Moody’s sees as potential credit strength. However, compared to banks and captive issuers, the OCCU has a relatively small platform. Auto loans accounted for 62% of OCCU’s total assets, which total $3.2 billion.

In another plus transaction, OCCU Auto Receivables Trust, 2022-1, has a collateral pool with a weighted average (WA) credit score of 730, with a low of 620. Some 92.3% of debtors in the pool have a minimum credit score of 660.

Stifel, Nicolaus & Co. is the lead underwriter of the transaction, which will issue the notes through a senior subordination structure.

As the notes mature, toward a legal final maturity of Oct. 15, 2023 through March 15, 2031, the notes also have the ability to provide credit enhancement, according to Moody’s. At closing, the A1 classes through the D class notes benefit from a firm credit enhancement. Such credit enhancement consists of overcollateralization, non-declining reserve account and subordination, except for Class D Notes, which do not benefit from subordination.

The ratings could also benefit from an excess spread, according to Moody’s.

Still, Moody’s flagged a number of potential credit issues. On the one hand, almost half of the pool balances backing OART202-1, or 49.9%, have original terms of 84 months, which is higher than many other auto loan transactions with the ratings of Moody’s. These longer terms expose the Notes to potential negative credit events and macroeconomic factors as the Notes amortize.

Yet, there could be a factor mitigating this risk.

“OCCU’s managed portfolio 84-month loans demonstrated strong performance relative to OCCU loans with shorter initial terms,” ​​the analysts wrote in the report.

In another potential credit weakness, more than 92% of debtors are based in the states of Oregon or Washington. The concentration in just two states is significantly higher than other automotive ABS deals.

Moody’s plans to assign P-1 ratings to the A-1 notes; ‘Aaa’ in notes A-2 to B; ‘Aa3’ on class C notes and ‘Baa2’ on class D notes.

For its part, S&P Global Ratings indicates its intention to assign A-1+ ratings to A-1 ratings; ‘AAA’ at ratings A-2 to A-4; ‘AA’ and ‘A’ to class B and C grades; and ‘BBB’ to Class D ratings.

Oregon Community Credit Union sponsors its first asset-backed securities (ABS) transaction, a $276.3 million transaction secured by a pool of direct and indirect loans on investment-grade auto loans, as well as contracts installment retail.

A range of vehicles, including light trucks, sport utility vehicles and vans, new and used, will make up the warranty pool, according to a pre-sale report from Moody’s Investors Service.

The OCCU has been in business since 1956 and has serviced the loans it has issued for more than 65 years, which Moody’s sees as potential credit strength. However, compared to banks and captive issuers, the OCCU has a relatively small platform. Auto loans accounted for 62% of OCCU’s total assets, which total $3.2 billion.

In another plus transaction, OCCU Auto Receivables Trust, 2022-1, has a collateral pool with a weighted average (WA) credit score of 730, with a low of 620. Some 92.3% of debtors in the pool have a minimum credit score of 660.

Stifel, Nicolaus & Co. is the lead underwriter of the transaction, which will issue the notes through a senior subordination structure.

As the notes mature, toward a legal final maturity of Oct. 15, 2023 through March 15, 2031, the notes also have the ability to provide credit enhancement, according to Moody’s. At closing, the A1 classes through the D class notes benefit from a firm credit enhancement. Such credit enhancement consists of overcollateralization, non-declining reserve account and subordination, except for Class D Notes, which do not benefit from subordination.

The ratings could also benefit from an excess spread, according to Moody’s.

Still, Moody’s flagged a number of potential credit issues. On the one hand, almost half of the pool balances backing OART202-1, or 49.9%, have original terms of 84 months, which is higher than many other auto loan transactions with the ratings of Moody’s. These longer terms expose the Notes to potential negative credit events and macroeconomic factors as the Notes amortize.

Yet, there could be a factor mitigating this risk.

“OCCU’s managed portfolio 84-month loans demonstrated strong performance relative to OCCU loans with shorter initial terms,” ​​the analysts wrote in the report.

In another potential credit weakness, more than 92% of debtors are based in the states of Oregon or Washington. The concentration in just two states is significantly higher than other automotive ABS deals.

Moody’s plans to assign P-1 ratings to the A-1 notes; ‘Aaa’ in notes A-2 to B; ‘Aa3’ on class C notes and ‘Baa2’ on class D notes.

For its part, S&P Global Ratings indicates its intention to assign A-1+ ratings to A-1 ratings; ‘AAA’ at ratings A-2 to A-4; ‘AA’ and ‘A’ to class B and C grades; and ‘BBB’ to Class D ratings.

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