GreenState Auto Receivables seeks to sell $416.6 million in prime ABS

GreenState Credit Union is selling $416.6 million in asset-backed notes to investors, a 144a securitization backed by a pool of direct and indirect prime quality auto loans and retail installment sale contracts.

GreenState originated the 17,263 underlying contracts in the collateral pool, according to ratings analysts from Moody's Investors Service. Slated to close this week, the transaction will issue notes through seven tranches of class A through D notes, the rating agency said.

BofA Merrill Lynch is the manager on the deal, while Stifel, Nicolaus and BofA are both initial note purchasers. The notes in GreenState Auto Receivables Trust, 2024-1, will benefit from GreenState's longstanding origination and servicing history. Despite a small platform compared with peer programs, GreenState was founded in 1938, and as of Dec. 13, 2023, it had $11.4 million in total assets, 17% of which were auto loans.

Although GreenState has a strong track record, Kroll Bond Rating Agency points out that recent rapid origination growth between Q4 2021 and Q2 2022 coincided with some credit deterioration in the 2022 and 2023 vintages. The real issue, KBRA finds, is the effect of inflation, higher interest rates and the higher concentration of loans originated in Illinois compared with previous deals. The state has experienced higher default rates than those seen in Iowa, according to KBRA.

Credit boosts also come from the underlying assets' strong credit quality and a buildup of credit enhancement. The collateral has a weighted average (WA) FICO score of 753, a minimum of 660, and almost all of the obligors in the pool, about 90.8%, have a FICO score of higher than 680. On closing, all of the class A notes have total initial hard credit enhancement of 10.85%, while classes B, C and D have total initial hard credit enhancement levels of 8.33%, 6.17% and 4.25%, respectively.

GreenState Auto 2024-1 will repay the notes sequentially, where senior notes will receive full principal payments before subordinated notes get their payments. The notes also benefit from initial overcollateralization of 4.00%, which can build to a target of 4.50%. Yield supplement overcollateralization (YSOC) representing 2.4% of the pool, subordination, a cash reserve account and excess spread also provide enhancement, KBRA said.

KBRA expects to assign ratings of K1+ to the A1 tranches; AAA to the A2 through A4 tranches; AA+ to the B tranche; A+ to the C tranche and BBB+ to the D tranche. Moody's meanwhile, assigns ratings of P1 to the A1 notes; Aaa to the A2 through A4 tranches; Aa2 to the class B notes; A2 to the class C notes and Baa2 to the D tranche.