BMW issues first U.S. auto lease ABS of 2018 in $1B deal
BMW Financial Services of North America is launching its first U.S. auto lease securitization of the year, with a slight bump in credit quality that allowed for reduced credit enhancement compared to its prior deal.
BMW Vehicle Lease Trust 2018-1 will feature four classes of senior fixed-rate notes totaling $1 billion, backed by $1.16 billion in outstanding lease receivables and future resale values of primarily new passenger sedans, SUVs and crossovers sold at U.S. BMW franchised dealerships.
A $189 million money market tranche carries preliminary A-1+ rating from S&P Global Ratings and a P-1 from Moody’s Investors Service. The two-year and three-year note tranches and are sized at $355 million apiece, while the four-year Class A-4 tranche totals $100 million. All of the term notes have early triple-A ratings.
The senior notes in the BMW trust’s 14th overall lease securitization benefit from initial credit enhancement of 14.4%, a drop from the 15.65% level in BMW’s 2017-2 transaction. The primary difference from the previous transaction is a slightly higher weighted average FICO (789 from 784) and 11 months of seasoning, compared with 10 last year.
Loss expectations for the deal remain unchanged at 0.5%, based on BMW’s strong borrower credit profile.
The pool’s model and geographic mix are diverse in its pool, with the top five vehicle models (3 Series, 5 Series, 4 Series, X5, and X3) accounting for approximately 76% of the securitization value. California (14.69% of the pool), Florida (14.37%), New Jersey (12.79%) and New York (12.44%) remain BMW’s primary markets.
As of June 30, BMW’s managed lease portfolio was $21.09 billion on 485,782 leases. That is down from $21.5 billion a year ago, but BMW saw its loss levels improve on residuals (or the end-lease resale values of cars turned back into BMW) to 4.1% compared to 6.1% halfway through 2017. BMW has experienced loss levels since 2016 – based on residual values set by Automotive Leasing Guide – ranging from 355%-7.44% each year.
According to S&P, the undiscounted base residual value for the vehicles in the 2018-1 pool is $838.3 million or 71.97% of the securitization value of the pool, which “reflects a slight decline” in the vehicles’ residual values since lease inception.
S&P and Moody’s noted the ALG numbers show the pool of vehicles are expected to be valued at 42.6% of their retail price at maturity – a figure that has been declining in each BMW lease transaction since 2013. The ALG numbers are expected to end up being 60.2% of the securitized value of the cars.
The maximum BMW consumer lease is 36 months. None of the leases mature before February 2019, with a majority of the contracts (50.7%) maturing in 2020.