Veridian Credit Union, chartered in the state of Iowa, is sponsoring its first asset-backed securities (ABS) deal, offering investors $310.5 million in notes under a 144a securitization structure.
A collateral pool of prime-quality motor vehicle loans, indirectly originated through dealer channels, secures the notes in the transaction, called Veridian Auto Receivables Trust, 2023-1, according to initial ratings assessments from Moody's Investors Service.
BofA Securities and Stifel, Nicolaus & Co. are lead underwriters on the deal, which will issue notes through about seven classes and one overcollateralization tranche, according to Moody's.
Veridian originated the loans, and has been originating and servicing them for more than 85 years, according to Moody's. The National Credit Union Administration, a government-backed insurer of credit unions classifies Veridian as "well capitalized," which helps mitigate some risks associated with its lack of securitization experience. While that 85-year track record does instill some confidence for the timely repayment of notes, according to Moody's, Veridian Credit Union is still unrated, another concern.
The VCU 2023-1 pool consists of prime quality auto loans, financing new (20.1%) and used (79.9%) automobiles, including light duty trucks, sport utility vehicles and vans. Borrowers have a weighted average (WA) credit score of 737, with a minimum score of 620, according to Moody's.
On a cumulative basis, for the entire VCU 2023-1 asset pool, Moody's set loss expectations at 1.75%, and 9.00% at a 'Aaa' stress, the rating agency said.
In terms of geographic concentration, some 56% of the 14,022 obligors in the pool are based in Iowa or Nebraska. When two states account for such a high concentration of the underlying loans, then the transaction becomes exposed to worsening performance stemming from regional economic trends or other specific and peculiar risks.
In a used car market where prices are coming down from record highs, that fluctuation could expose transactions like VCU 2023-1 to lower recovery rates and higher loss severity, resulting in higher net losses.
Moody's intends to assign ratings of 'P-1' to the A-1 notes; 'Aaa' to the A-2 through class B notes; 'Aa1' to the class C notes and 'A3' to the class D notes.
S&P Global Ratings also assigns ratings to the notes, giving 'A-1+' to the class A-1s; 'AAA' to the A-2 through A-4 notes; 'AA' to the class B notes; 'A' to the class C notes and 'BBB' to the class D notes.
