BBVA is marketing €800 million in bonds secured by a pool of receivables for new and used-vehicle loans in Spain.

BBVA Consumer Auto 2018-1 is a 1.5-year revolving securitization; five classes of notes will be issued, including a Class A senior tranche of €728 million with a provisional AA (low) rating from DBRS and Aa1 from Moody’s Investors Service, according to presale reports.

The senior notes benefit from 9.5% credit enhancement, of which 9% is subordination of other tranches.

The other tranches are €23.2 million in single-A rated Class B notes (A1 by Moody’s); the €32.8 million Class C bonds (BBB/Baa1); the €10 million in Class D (BB/Ba2); Class E notes totaling €6 million (B3 by Moody’s) and the Ca1-rated Class Z bonds, which will be sold to build a reserve fund supporting the portfolio.

DBRS did not rate the Class E or Class Z bonds.

The 101,709 loans used as collateral have an aggregate principal balance of €919 million, or nearly half of the €2 billion of receivables in BBVA's servicing portfolio. The contracts have a weighted average remaining maturity of 62.7 months and a weighted average interest rate of 7.7%. Nearly 97% have never been in arrears, Moody’s reported.

Moody’s stated that one of the strengths to the deal are the “strong” eligibility criteria for replenishing collateral in the revolving transaction, including a minimum 7.25% yield, remaining terms and seasoning. (The average account in the initial pool has a balance of just €9,037 after 19 months of seasoning.)

Another strength: The high excess spread, or difference between interest earned on the collateral and paid out on the notes, is high, at 7.66%.

DBRS wrote that one of the risks in the portfolio is BBVA’s allowance of loan modifications; however, the outstanding balance of renegotiated loans cannot exceed 10% of the initial note balance.

New-car contracts make up 54.4% of the pooled loans.

Moody’s expects 4% on the assets in the pool to default over the life of the transaction, based on a 90-day delinquency level of 4.1% as of the third quarter of 2017.

The deal was arranged by Merrill Lynch International.

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