Bayview Opportunity Master Fund VII Trust is preparing to issue $143.3 million in collateralized debt obligations (CDO), where motor vehicle retail installment loans and sale contracts secure other underlying securities.
Series CAR1F of the transaction will issue just one tranche of class A notes, which are ultimately secured by four classes of previously issued notes that were packaged in the BVABS 2023-CAR2 and BVABS 2023-CAR3 issuances, according to Moody's Investors Service. Moody's rates the notes Baa2.
The notes are slated to price at around 225 points over the three-month, interpolated yield curve, which is virtually on par.
Morgan Stanley is the arranger, while Bayview Opportunity Master Fund VII is on as the repo seller on the deal, which has a legal final maturity date of July 2032, Moody's said.
The rating agency highlighted a few potential credit challenges, including that the underlying transactions pay on a pro-rata basis, but that can switch to sequential pay if performance triggers, which can be addressed, are breached. Sequential pay can also kick in if the pool balance is less than or equal to 5%. This mechanism will lock out the principal cash flow from the underlying securities, Moody's said.
Should triggers on both underlying transactions be tripped at the same time, and then no principal cash flow will be available in the transaction, the rating agency said.
Bayview is also exposed to negative spread, since the weighted average coupon of the underlying securities is lower than the coupon due to the class A noteholders, Moody's said.
