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BMW, Mercedes-Benz add to early 2018 U.S. auto ABS pipeline

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The captive finance arms of two German automakers added at least $2.5 billion to the pipeline of U.S. auto-related ABS, which is filling up fast.

BMW’s North American arm is launching its first U.S. vehicle-loan asset-backed transaction in two years with a $1.25 billion bond offering. Meanwhile the U.S. captive-finance affiliate of Daimler AG is kicking off 2018 with a $1.3 billion, and potentially $2 billion, securitization of primarily Mercedes-Benz vehicle lease contracts.

Both join GM Financial and CarMax Auto Finance as early birds into the 2018 prime auto loan/lease market. Last week, General Motors' captive finance arm initiated a $1.24 billion bond sale last week backed by prime auto loans.

BMW Vehicle Owner Trust 2018-A

According to a presale report from Fitch Ratings, BMW Vehicle Owner Trust (BMWOT) 2018-A will issue $1.25 billion in notes, including $250 million of Class A-1 money market notes (rated F1+ by Fitch). The all-senior note package will also include $490 million in split Class A-2 series of fixed- and floating-rate notes, a $360 million Class A-3 tranche and a $150 million Class A-4 series of bonds.

All the notes are supported by initial 2.75% credit enhancement, according to Fitch.

This is the first vehicle-loan transaction sponsored by BMW Financial Services NA since 2016-A, and only the fifth since 2011. The deal is backed by retail loan contracts for new and used BMW and Mini vehicles, light trucks and motorcycles. All of the loans were originated by BMW Financial Services or BMW Bank of North America.

The weighted average borrower score among contracts in the pool is 778, which Fitch says is higher than prior BMWOT pools. The average seasoning is 10.2 months with a “diverse” segment and vehicle model mix.

The percentages of extended-term contracts and certified pre-owned collateral have been upsized in this deal compared to BMW’s 2016-A transaction.

The aggregate balance of the collteral is $1.42 million, or $26,615 per vehicle on 53,449 loans. The weighted average APR is 2.4%, on original terms of 63.22 months. The percentage of loans over 60 months is 42.6%. New vehicles comprise 60% of the pool.

Fitch has assigned a 1% cumulative net loss proxy to the transaction.

JPMorgan is the lead underwriter.

Mercedes-Benz Auto Lease Trust 2018-A

In a regulatory filing Wednesday, Mercedes-Benz Financial Services USA LLC indicated it iss planning a $1.29 billion auto lease trust which could be upsized to $2 billion.

The issue would include $266 million in Class A-1 money-market notes, $460 million in each of a Class A-2 and A-3 notess, and a $100.3 million Class A-4 tranche. If the deal is upsized the Class A notes will be $415 million, the Class A-2 and A-3 notes would be $722 million apiece and the Class A-4 notes will be $156.1 million.

Both Fitch Ratings and S&P Global Ratings are expected to assign triple-A ratings to the transaction (as well as F1+ and A-1+ ratings, respectively, to the short-term A-1 bonds), according to the prospectus.

The smaller version of the deal would include an overcollateralization of $213.7 million, while the upsized deal would have $334.9 million of initial OC.

The 35,633 leases in the proposed $1.3 billion portfolio have a securitization value of $1.5 billion and an aggregate residual value of $1.05 billion (about 70% of the pool). Only 430 of the leases – representing 1.21% of the aggregate securitization value of the proposed $1.3 billion pool – have ever had a 30-day plus delinquency.

The $2 billion pool would involve 55,813 loans with a total securitization value of $2.35 billion, and a residual value of $1.65 billion (or 70.03%).

As of last Sept. 30, MBFS had 470,718 lease contracts with an outstanding balance of $22.3 billion, up from $20.8 billion a year earlier. The portfolio has minimal delinquencies, only 2,674 contracts (0.57% of the portfolio) delinquent 30 days or more; and has a net charge-off rate (minus recoveries) of just 0.27% ($55.9 million).

The turn-in rate on Mercedes-Benz Financial Services leased vehicles remains above 90%, but the company achieved a much lower loss rate on the residual values of returns last year, just 1.79% – that’s $48.8 million or $544 per vehicle – from the residual loss after the resale of returned vehicles. That compares to a 5.47% loss, or $172.6 million/$1,657 per auto, in the same period in 206.

The average original term is 37.62 months, with a weighted average remaining term of 25 months. The WA FICO score of lessors is 785, with a range of 651 to 899. Nearly 36% of the leases in the $1.29 billion pool have 13 to 24 months remaining on their terms; 43% of the leases – 15,257 contracts – are slated to mature between 25 and 36 months after the pool’s cutoff date. The ratio is similar for the $2 billion portfolio.

MBFS has been securitizing auto leases since 2009.

MUFG, Bank of America Merrill Lynch and Mizuho Securities are joint bookrunners on the deal. Wells Fargo and Santander are co-managers, according to the filing.

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