Bayview Asset Selector VII is sponsoring a transaction that will issue $4.6 billion in asset-backed securities through the BVABS 2023-CAR3 transaction, where revenue from retail installment auto loan contracts— and a large exposure to Tesla loans, especially—will repay outstanding notes to investors.
Loans financing Tesla vehicles account for 41.73% of underlying loans in the deal, according to ratings analysts from Moody's Investors Service. In another boon to the credit of the notes, those borrowers have strong credit traits, with a weighted average (WA) FICO score of 803.
Morgan Stanley is the lead underwriter on the deal.
This segment's high credit score reflects the strong credit quality of the collateral overall, considering that the pool has a FICO score of 791 on a WA basis, and seasoning of 14 months. The previous deal, BVABS 2023-CAR2, has a WA original term of 75 months with 22 months' of seasoning, and a FICO score of 757, according to Moody's.
Another strong credit characteristic is that USB, the subsidiary of U.S. Bancorp, originated the loans, is the deal sponsor and will service the receivables, according to Moody's.
Yet the deal has its share of challenges, the rating agency said in its pre-sale report. Loans with unperfected liens—where USB has a copy of the signed original contract, but does not maintain physical possession of the original—accounts for 38.9% of the pool's receivables. In addition to not holding the original, they likely did not file a UCC-1 financing statement against the dealer, which should reflect the transfer and assignment from the dealer to USB.
Without a perfected lien, another party could claim superior rights to the receivable, even if insolvency occurs.
The trust will repay investors on a pro rata structure, where classes A-2 through class F will receive a pro-rata share of the payments allocated to the subordinate notes, Moody's said. This could expose the senior bonds to higher tail risk, when the transaction might not have enough subordination to absorb losses before they come under stress, the rating agency said. All of the notes have a legal final maturity of July 26, 2032.
Moody's expects to assign ratings of 'Aaa' to the A-1 and A-2 notes; 'Aa3' to the class B notes; 'A3' to the class C notes; 'Baa3' to the class D notes; 'Ba3' to the class E notes; and 'B3' to the class F notes.
