USAA returns with $486m prime auto loan ABS

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USAA Federal Savings Bank is offering its first securitization in over a year with a new $485.9 million transaction backed by direct auto loans originated for its primarily service-member customer base.

USAA Auto Owner Trust 2017-1 will issue $457 million in mostly senior notes secured by a pool of 33,618 seasoned loans with a principal balance of $14,453 (from an original average balance of $21,098).

USAA will retain a 5% vertical stake in each of the four classes of senior notes as well as a subordinate Class B tranche.

The senior notes include a $139.27 million money-market tranche with a preliminary P-1 rating by Moody’s Investors Service and an A-1 by S&P Global Ratings, and three triple A rated tranches: Class A-2 notes due 2020 and a Class A-3 series due 2021, each sized at $123.7 million, and $62.24 million in Class A-4 bonds due 2022.

The notes are supported by initial credit enhancement of 3%, slightly higher than USAA’s previou transaction in September 2016.

The subordinate tranche is sized at $8.08 million, and is rated A3 by Moody’s and A by S&P.

The loans have an estimated balance of $503 million, according to S&P.

The 2017-1 pool’s strong credit characteristics are typical for a USAA transaction: high average FICO (740), well-seasoned (16 months) and solid-payment performance with no delinquencies beyond 30 days. Unlike many originators, none of USAA’s loans are made indirectly to dealers – only to its members who are former U.S. armed services or their dependents.

The bank is, however, using more longer-term loans: those with original terms of more than 60 months has increased to 62% compared to 54% in the 2016-1 transaction.

With its base in San Antonio, USAA has traditionally had a strong concentration of borrowers in Texas (between 14% and 19% of ABS pools since 2010). In the latest transaction, however, USAA had reduced that exposure to just 12%, with Moody’s explaining that the issuer has look to exclude loans from customers living in regions affected by the damage from Hurricane Harvey in late August, over concerns of missed payments and defaults from distressed owners.

Moody’s projected cumulated net losses of 0.4%, based on the historical performances of USAA transactions. S&P estimates a range between 0.6%-0.8%. The most recent delinquency rates (June 2017) for USAA’s $15.9 billion managed portfolio is 0.49%. Net charge-offs were $36.6 million or 0.46% of the portfolio.

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