UNIFY Financial Sells Auto Loans in ABS Deal
LA-area credit union becomes the second credit union to sell loan-backed securities on Wall Street.
A Los Angeles-area credit union has become the second credit union to issue securities backed by its auto loans.
UNIFY Financial Federal Credit Union issued $300 million in asset-backed securities (ABS) on Wednesday. The credit union is based in Torrance, Calif., 20 miles south of Los Angeles, and had $3.4 billion in assets and 259,847 members as of Dec. 31.
In November 2019, GTE Financial Credit Union of Tampa, Fla. ($2.5 billion in assets, 224,788 members) became the first credit union sponsor of asset-backed securities sold on Wall Street with a sale backed by $175 million of its auto loans.
A March 11 ratings report from Standard & Poor’s Financial Services showed how the two issues differ and how the impact of the COVID-19 pandemic was weighed as a risk factor in the Unify securities.
S&P assigned its highest ratings of “AAA” to $268.4 million to senior tiers backed by loans with final payoffs from March 2022 to July 2026. It assigned lower ratings from “AA” to “BBB” to $31.6 million in subordinate tiers with loans maturing from November 2026 to November 2029.
The sale closed Wednesday with Stifel, Nicolaus & Co. Inc. of St. Louis as the initial purchaser. UNIFY Financial was the sponsor, originator, seller, servicer and administrator.
UNIFY’s pool contained 11,204 indirect auto loans, and generally contained more new cars, higher credit scores, bigger loans and longer terms than the 9,430 auto loans in the GTE pool.
About 55% of the UNIFY loans were for new cars, compared with 32% in the GTE pool. The average loan balance outstanding was $35,952 in the UNIFY pool and $23,071 in the GTE pool. FICO scores were 748 in the UNIFY pool, compared with 726 in GTE pool.
Risks and loss factors noted in the S&P report included:
- A high weighted average loan-to-value (LTV) ratio of 108.5%, compared with 93.4% for GTE and 92.2% for a recent ABS sale of loans from CarMax.
- A high concentration of loans greater than 72 months comprising over 88% of the pool, compared with 62% of loans in the GTE pool.
- “The managed portfolio performance since March 2020 likely benefited from federal stimulus and unprecedented extension offers due to COVID-19, and therefore loss performance could have been somewhat muted during that time.”
- About 33% of UNIFY’s loans were originated in Nevada.
“In our view, COVID-19 has had and may continue to have a significant negative impact on Nevada’s economy. Unemployment levels in Nevada have been higher and may continue to be higher than the national average throughout the COVID-19 pandemic,” the S&P report said.
“We believe that Nevada’s economy and unemployment rate with a higher dependence on tourism and the hospitality industry may continue to recover more slowly compared to the overall national economy and unemployment rate,” it said.
UNIFY originated $284.2 million in indirect auto loans in the 12 months ending Dec. 31, up from $274.8 million in 2019, but down from a recent peak of $350.4 million in 2018. Average weighted terms were 82 months last year, up from 81 months in 2019. APRs were 4.77%, down from 5.72% in 2019.
The average weighted FICO scores were 754 last year, up from 745 in 2019. Just over half — 51.5% — were new cars last year, compared with 52.9% in 2019.