USAA Federal Savings Bank (USAA FSB) is preparing to issue $1 billion in asset-backed bonds secured by a pool of prime-quality retail installment auto loan contracts.
USAA operates a direct lending business model and is a financially strong and experienced servicer, according to a Moody's Ratings pre-sale report assessing the transaction's credit. These traits could help counterbalance a few credit challenges, including the performance deterioration in recent loan pools, a higher proportion of longer-term loans, and two key risks: declining auto prices and Federal Deposit Insurance Corp.'s (FDIC's) repudiation risk.
The transaction will issue class A and B notes through five tranches, the capital structure indicates. Asset Securitization Report's deal database suggests yields ranging from 5.3% on the AAA-rated A notes and 5.0% on the AAA-rated A4 notes. The notes are expected to price at par, or 99.9% more precisely, and are benchmarked to the three-month interpolated yield curve, the database said.
Three institutions are on the deal as lead underwriter—
Moody's says it expects a 0.60% loss on the 2024-A pool, with a 3.0% loss at the Aaa stress, according to the rating agency.
The notes have legal final maturity dates ranging from July 15, 2025 through Nov. 17, 2031.
Moody's assigns ratings of P1 to the A1 notes; Aaa to the A2 through A4 notes; and Aa3 to the class B notes. S&P Global Ratings puts AAA on the A2 through A4 notes.
The underlying loans have a weighted average (WA) FICO score of 747, the highest compared to previous USAA pools, Moody's said. The pool, most of which finance used cars (52%), has an annual percentage rate of 5.69%, and remaining term of 51 months. On average, the rating agency said, the loans have a $21,580 average balance, the rating agency said.
As for credit enhancement, the notes benefit from a reserve fund representing 0.25% of the pool balance, subordination and about 1.84% of excess spread annually Moody's said. In total, the notes have initial hard credit enhancement of 2.74% on the A1 through A4 notes, and 1% on the class B notes. There is also an overcollateralization piece representing 0.75% of the deal.
