Ent CU Sells $54 Million in Loans

Ent Credit Union said Tuesday it has sold $54 million in unsecured personal loans to an institutional investor.

Also on Tuesday, Moody’s announced it had placed a $9 million group of securities backed by Ent auto loans on review for a possible downgrade because of higher-than-expected losses.

Ent ($9.8 billion in assets, 533,480 members), headquartered in Colorado Springs, Colo., has raised cash and helped reduce its loan-to-share ratio through loan sales.

LendKey, a Cincinnati company that offers digital network lending, facilitated the $54 million whole loan portfolio sale, which closed in March through LendKey’s ALIRO loan trading platform.

LendKey said its ALIRO platform is designed to allow credit unions to reach a broader pool of potential investors while maintaining control over the loan portfolio. Besides automating closings, it provides servicing, remittance, reporting and accounting functions.

Since ALIRO was launched in 2021, LendKey has closed more than $3 billion in loan sales to credit unions and institutional investors through the platform.

The Moody’s review affects the final and riskiest tranche of $243 million in auto-backed securities that were sold in seven tranches in September 2023.

Ent Auto Receivables Trust 2023-1 consists of 8,124 auto loans with borrowers having credit scores of at least 660 and a weighted-average of 733 for the pool. About 25% of the loans are for new cars, and more than 97% are to borrowers in Colorado.

Moody’s Investors Service’s Sept. 21 pre-sale report said key credit strengths include ENT’s long servicing history and “the strong credit quality of the collateral.” Risks include ENT’s lack of securitization history, the pool’s high proportion of longer term loans, their geographic concentration in one state, “and the risk of further decline in used car prices.”

The ENT securities included $220 million in four investment-grade classes maturing from October 2024 to November 2029 with yields ranging from 5.8% to 6.3%. It also included $23 million in three classes of subordinated securities with junk ratings maturing from January 2030 to March 2031 with yields ranging from 6.5% to 7.8%, according to Stifel Investment Services of New York.

Moody’s is reviewing the final tranche, Class D, which matures by March 17, 2031 because of losses exceeding expectations for the underlying pool of loans. As of February, the cumulative net loss-to-liquidation on the underlying pool reached 3.3%.

“Recoveries have been low to date, with cumulative recoveries as a portion of defaults totaling 19%,” Moody’s said.

“The transaction requires loans over 120 days delinquent to be charged off. However Ent has noted that a large percentage of the vehicles underlying these loans are yet to be repossessed and sold,” Moody’s said. “We expect the recovery rate to improve as Ent repossesses and sells vehicles and we consider the impact of future recoveries on net losses.”

Another issue is that the tranche has fallen short of its 4.65% overcollateralization (OC) target. OC as a percentage of the original pool balance rose from 4% at the Sept. 29 closing to 4.55% in February, “though any increases in charge-off rates in future periods may negatively impact OC available to support the notes,” Moody’s said.

Ent is servicing the loans with a 1% annual servicing fee.

The auto securities sale reduced Ent’s loan-to-share ratio from 110.7% on June 30, 2023 to 102.8% on Sept. 30 — the day after its closing. However, Ent recorded a $4.1 million loss on loan sales in the third quarter.

For all of 2023, Ent earned $60.4 million, or 0.62% of its average assets, down from 0.78% in 2022. Its loan-to-share ratio had fallen to 99.9% by Dec. 31.