BMW Financial Services has joined in the cavalcade of captive auto finance companies in the securitization market early this year a $1 billion offering of notes backed by U.S. auto leases.
The deal, BMW Vehicle Lease Trust 2016-1, is sponsor’s first in which compact executive Series 3 vehicles are not the largest segment.
Bank of America Merrill Lynch is the lead underwriter.
Fitch Ratings assigned preliminary ‘AAA’ ratings to three tranches of class A notes totaling $817 million: $400 million of notes maturing in January 2018; $337 million of notes maturing in January 2019; and $80 million maturing in June 2019. There is also an ‘F1’ rated $183 million money-market tranche.
The senior notes all benefit from credit enhancement of 17.05%, similar to the BMW Vehicle Lease Trust 2015-2 but below that of recent peer securitizations like the Mercedes-Benz Auto Lease Trust 2015-B (16.65%) and Porsche Innovative Lease Owner Trust 2015-1 (15%). BMW has improved its “hard” initial CE levels over the last five years, which were 17.15% for the first least trust of 2015, and as high as 19.75% for BMW of North America’s first lease collateralization in 2010.
The new securitization will have a 0.25% reserve fund (in line with 2015-2) and an initial overcollaterization of 16.8% for the Class A notes will be used alongside excess spread to build a target 18.95% OC of initial securitization value.
The notes are backed by 32,198 leases originated by BMW Financial Services for new cars manufactured by German global parent BMW AG. The average initial securitization value of $37,329 per vehicle places the aggregate balance of the collateralized loans at $1.2 billion.
The average remaining term on the 36-month leases in the pool is 25.38 months. The leases carry a 47.14% residual value the original MSRP and 73.11% of the total securitization. The residual value of the securitization is the highest seen of the eight BMW lease trust pools issued since 2010.
Fitch’s expectations for net credit losses of 0.80% are slightly below those of BMW’s previous lease securitization; in its presale report the rating agency attributed this to the slightly stronger collateral mix and the strong performance of BMW’s ABS portfolios.
Among the ratings factors cited in the presale report is the pool’s vehicle segment diversification (72.4% cars, 27.6% light trucks/sports activity vehicles), which it considers to be “neutral;” the “historically high” turn-in rate (80%) of off-lease vehicles to BMW Financial Services, and the model concentration that is led by the mid-level executive BMW 5 Series representing 24.7% of the pool.
Fitch remains negative on the wholesale outlook of off-lease vehicles (as it was in October for the 2015-2 trust) because of the back-end residual maturity risk – 54% of the leases won’t come due until 2018 or later, which is too far out to reliably predict used vehicle market demand.
The new BMW lease trust follows recent new manufacturer auto-based securitizations announced by Nissan, Hyundai, Volkswagen and Ford, as well as new/used securitizations of vehicle leases and loans by CIG Financial, Santander Consumer USA, United Auto Credit, Drivetime, Hertz and Enterprise Rent-A-Car issued since the start of the year.
BMW was last in the securitization market in October; that deal was also sized at $1 billion.