Space Coast Sells $669 Million in Auto Securities

Florida’s Space Coast Credit Union sold $669 million in auto loan securities Wednesday, its second launch in less than a year.

Like its $422.5 million sale in December 2023, the deal involved loans originated indirectly through dealer to borrowers with prime credit scores. The latest NCUA data showed Space Coast held $3.8 billion of indirect auto loans on March 31, the fourth-largest amount among all credit unions.

The amount rose from $485 million expected in S&P Global’s July 11 pre-sale report. The credit union provided $691 million in collateral for the $669 million issue.

“Space Coast Credit Union utilizes loan securitizations to access liquidity and strategically manage our balance sheet,” Space Coast CFO Gabe Engman said in an email to CU Times Friday. “We’re committed to delivering value for our members and this is one way we are able to do so.”

Space Coast’s indirect auto loans were 89% of its $4.3 billion in car loans and 51% of its $7.5 billion in total loans on March 31, based on NCUA data from Callahan & Associates’ Peer Suite.

The deal is the fourth auto loan-backed securities sale this year, raising the 2024 total to $1.66 billion.

The sale improves Space Coast’s above-average loan-to-share ratio, and has the potential to lower its above-average borrowings. It will also earn a 1% servicing fee.

With Space Coast’s $422.2 million sale in December, its loan-to-share ratio fell from 111.2% as of Sept. 30 to 108.4% as of Dec. 31. Borrowing fell from 13.2% of assets to 12.7%.

As of March 31, Space Coast had a loan-to-share ratio of 100.9%, compared with an average of 82.8% for all credit unions. Its borrowings were 8.7% of assets, compared with 5.7% among all credit unions.

If the July securitization had closed March 31, Space Coast’s loan-to-share ratio would have fallen to 91.9%. If the full amount were applied to borrowings, they could have been reduced to 1.5% of assets.

The issue received investment-grade ratings from S&P and Moody’s partly on the strength of credit enhancements and the strength of the collateral.

S&P Global’s July 11 presale report said the prime automobile loans compared favorably as collateral to most of its credit union peers. One weakness is its geographic concentration with all of the loans originated in Florida.

“Concentrated portfolios can be riskier due to the potential for greater regional economic downturns that may adversely impact the pool’s performance,” the report said.

The report said Space Coast’s indirect loans are originated through DealerTrack or RouteOne, and are subject to the credit union’s credit review and approval. Space Coast had 476 active dealership partners as of March 31, of which 93% were franchise dealers.

“SCCU has not signed up a new independent dealer in several years,” the report said. “SCCU prefers partnering with franchise dealers because there is typically additional risk oversight by the manufacturers.”

As of May 31, the SCCU 2024-1 pool consisted of loans for $500.78 million in loans to 13,877 borrowers. Loans with original terms greater than 72 months accounted for 56.5% of the pool.

The loans had a minimum credit score cutoff of 640. The weighted average credit score was 761, compared with 770 in the December sale. Other measures of the July issue compared with December include:

• The weighted average APR was 7.96%, compare with 7.4% in the December sale.
• The average term was 75 months, compared with 73 months in the December sale.
• The weighted-average loan-to-value ratio was 99.8%, compared with 95.7% in the December sale.
• Used cars accounted for 55.1% of the loans, compared with 53.5% in the December sale.

S&P said the ratings could be affected by national economic trends. It said it was “closely watching the following developments:”

• Income growth, which it said has significantly lagged spending growth since mid-2023, resulting in consumers relying more on credit and savings. “Excess savings are likely depleted for all but the highest-income households, and delinquency rates on credit cards and auto loans now exceed pre-COVID-19 pandemic levels.”
• Rising costs of ownership. “Lower income segments continue to face vehicle affordability issues due to higher monthly auto loan payments, stemming from rising interest rates and soaring auto insurance premiums, which increased 20.3% year-over-year in May 2024, according to data from the Bureau of Labor Statistics.”
• Tightening job market. “Unemployment insurance claims remain relatively low, though they have slightly drifted up recently, and the ratio of job openings to unemployed has fallen to near its pre-COVID-19 pandemic level.”