BMW Financial Services' first auto lease securitization of the year features triple-A notes with slightly higher credit enhancement than an auto lease deal announced by Mercedes-Benz earlier today.

The $1 billion BMW Vehicle Lease Trust 2015-1 is only the second auto lease securitization of 2015, following Mercedes-Benz $1.6 billion transaction, MBALT 2015-A.

Similar to the Mercedes deal, BMW’s transaction is backed 100% by luxury cars. J.P. Morgan is the lead underwriter.

Fitch Ratings and Moody’s Investors Service assigned preliminary ratings to the notes. The money market tranche is sized at $164 million and will be rated ‘F1+’/ ‘P-1’. The notes are due January 2016. 

The trust will also offer $836 million of ‘AAA’ / ‘Aaa’ rated notes. The class A-2 notes, split into floating- and fixed-rate notes, are due February 2017; the class A-3 fixed-rate notes are due December 2017 and the fixed-rate class A-4 notes are due June 2018. Fitch assigned rating with credit enhancement at 17.15% and Moody’s required credit enhancement at 16.9%.

By comparison, Mercedes' triple-A rated notes, structured with similar final maturities, required slightly lower credit enhancement at 16.65%

Both deals are backed by a portfolio of luxury leases, which have historically suffered greater residual losses than non-luxury vehicle leases. BMW’s greatest residual loss was recorded at  year-end 2008, when the issuer’s managed portfolio experienced losses of about 15.2%.

However residual value performance for BMW’s, and the luxury industry in general, have improved in recent year. In 2012, the portfolio registered  a record gain of 11.6%. This trend has cooled on the back of falling used car prices; for example in 2014 the BMW portfolio saw a 1.4% gain in residual value.  

The deal is backed by a pool of 31,311 leases that have a weighted average original term of 36 month and a weighted average remaining term of 27 months.  The weighted average FICO of the loans is 772.

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