Automakers continue early-year deluge of lease-backed ABS
Mercedes-Benz, Nissan and Ford are each marketing auto-lease securitizations to kickstart their respective 2020 asset-backed plans, proposing deals totaling up to $3.86 billion.
Mercedes-Benz Auto Lease Trust (MBALT) 2020-A is a $1.2 billion offering (with a potential upsizing to $1.8 billion) of bonds backed by pool of U.S. luxury-car auto leases by the German automaker through its Mercedes-Benz Financial Services USA. The sponsor is the captive finance arm of Daimler AG (OTCMKTS: DDAIF), and is underwriting the deal through Citigroup.
Nissan Auto Lease Trust (NALT) 2020-A, also via Citigroup, will be either a $1.2 billion or $1.01 billion transaction of leases originated and serviced by Nissan Motor Acceptance Corp., a wholly owned subsidiary of Nissan North American, Inc. In 2019, Nissan was the third-largest issuer of lease-backed auto ABS by dollar volume, behind Santander Consumer USA and GM (General Motors) Finance.
Ford Motor Credit’s initial $1.05 billion auto-lease deal for 2020 is the 18th lease ABS for the captive finance lender since 2011, featuring primarily fixed- and floating-rate senior notes backed by the contracts. Barclays is the lead underwriter.
The new deals signal continued momentum for the auto-lease ABS sector for 2020, after a $20.7 billion deal tally in 2019 that had surpassed 2018’s volume of $15.6 billion by 32.7%.
Last week, Hyundai Capital America proposed an issuance of notes backed by $1.02 billion in prime lease contracts.
The MBALT 2020-A transaction is largely similar to Mercedes-Benz’ previous auto-lease securitizations, with among the prime auto ABS market’s highest weighted average FICO of 790, according to presale reports from S&P Global Ratings and Moody’s Investors Service.
The monthly receivables paying the notes are backed by monthly lease payments and the future residual (or resale) values of new passenger vehicles and SUVs, with average securitization values of more than $42,000. Depending on a potential upsizing, the pool will consist of either 32,557 or 41,713 contracts that have weighted average original terms of approximately 38.4 months and remaining terms of 25 months.
The notes being sold include three Class A term notes: a $445.1 million or $570 million Class A-2 tranche due March 2022; a $405.1 million Class A-3 tranche totaling $405.1 million or $520 million, due December 2022; and Class A-4 notes totaling either $104.7 million or $135.1 million, with a September 2025 maturity. All have preliminary triple-A ratings from S&P and Moody’s.
A $225 million money-market tranche is also being marketed, but is not being rated by either agency.
Nissan’s first lease transaction of the year has strong credit characteristics compared to its prior $1.25 billion deal that priced in October. But with the issuing trust establishing a higher end-lease residual value expectation for NALT 2020-A, Moody’s is slightly bumping up its stressed-loss expectations over the 2019-B deal.
According to Moody’s, the higher RV setting exposes the trust to potentially higher losses if vehicle values are less than expected after the conclusion of the leases (which average 36-month original terms, and 25 months remaining. But Moody’s base-case loss scenario of 0.5% is unchanged from NALT 2019-B.
Nissan will market three tranches of senior term notes, as well as a one-year money-market offering. The term notes include a Class A-2 tranche of $440 million or $550 million (if upsized) notes due May 2022, split between fixed and floating-rate bonds. The variable-rate notes will be benchmarked to Libor in either pool.
A Class A-3 tranche ($349 million or $436 million) are due January 2023 and the Class A-4 tranche ($86 million or $107.5 million) mature April 2025.
All the notes carry provisional AAA ratings from S&P and Moody’s equivalent Aaa rating.
The Class A-1 notes will be sized at either $131 million or $164 million, and have each agency’s highest short-term rating of P-1 (Moody’s) and A-1+ (S&P).
Ford Credit Auto Lease Trust 2020-A, at $1.056 billion, is sized similarly to Ford Motor Credit’s four previous lease ABS transactions dating back to 2018. According to presale reports from S&P and Fitch Ratings, the Class A-2 tranche due July 2022 is $382 million, which will include a split floating-rate offering of notes that will be no more than $191 million.
A Class A-3 tranche totaling $353 million matures in march 2023, and a Class A-4 tranche sized at $75 million is due May 2023.
All the senior-term tranches have early AAA ratings from S&P and Fitch. A $190 million fixed-rate, money-market tranche is rated A-1+ by S&P and F-1 by Fitch.
Ford is also marketing two subordinate note classes: $56.2 million in Class B notes (rated AA+ by S&P and AA by Fitch) and an unrated Class C tranche totaling $52.4 million.
The collateral quality remains largely in line with prior deals.
Fitch notes that Ford has had declining levels of end-lease return vehicles in recent years, peaking at a post-crisis level of 77% in 2017 but declining to 75% in 2018 and 74% as of Sept. 30, 2019.
The vehicle mix consists mostly of pickup trucks, crossover and sport-utility vehicles; passenger cars make up just 13.3% of the pool. Fitch warned this could expose the trust to more risk on covering the residual values of the vehicles if rising fuel prices or consumer preferences affect demand for the SUV/truck segment.
The lease maturities in FCALT 2020-A are “fairly backloaded,” Fitch added, with 7.7% of the leases expiring in September 2022. Pools "with long remaining terms introduce more uncertainty as to the expected status” of the wholesale value of vehicles at the time of lease termination, the Fitch report stated. “Approximately 47.6% will mature in 2022 and beyond, a difficult time in the wholesale used vehicle market to predict.”
Ford attempt to mitigate that risk by applying a buildup of credit enhancement in the deal as the notes amortize.