U.S. Bank is preparing to issue $2.4 billion in credit-linked notes through the U.S. Bank Auto Credit Linked Notes, 2023-1, secured by a collateral pool of auto loans extended to prime borrowers.
The transaction will be the first time the sponsor—which originated the loans and will act as the servicer—has issued credit-linked notes, according to ratings analysts at Moody's Investors Service. The reference pool that supports the credit-linked notes contain 97,444 fully amortizing, fixed-rate prime auto loans that have a total balance of $2.46 billion.
The actual cash flow from the reference obligations will not fund the payments to the notes, Moody's said, so it capped the notes' ratings at US Bank's senior unsecured rating, A2. US Bank will be solely responsible to make interest and principal payments to the credit-linked notes, the rating agency said.
The rating agency notes that the transaction structure itself is among the deal's more positive credit strengths, especially the class R certificates that provide subordination to four tranches of notes that are all more senior to it. The deal also has a cumulative net loss trigger event that will redirect the subordinate notes to switch to sequential payments, Moody's said.
U.S. Bank Auto Credit Linked Notes' four other tranches all have the same legal final maturity date, Aug. 25, 2032, according to Moody's, which assigned ratings to just the class B and class C notes. Those tranches will receive ratings of 'A2' and 'Ba2' respectively.
Aside from the subordination lockout class, the transaction benefits from US Bank's reputation as a financially strong institution with more than 40 years of experience as a servicer. The collateral pool's high credit quality is another plus, says Moody's. The loans have a weighted average (WA) FICO score of 802, with a minimum score of 660. Also, the loans have an original WA term of 71 months, a WA loan-to-value ratio of 93.1%, and seasoning of 27 months.
