BMW plans to issue €800 million ($1.09 billion) of securities backed by a portfolio of German auto loan receivables, according to rating agency reports.

Moody's Investors ServiceFitch Ratings and DBRS have assigned the deal, Bavarian Sky S.A. Compartment German Auto Loans 2, preliminary ratings. They expects to rate the deal’s €756 million class A, floating rate notes, ‘Aaa’/ ‘AAA’/ 'AAA'. The capital structure also features €43.1 million of class B, floating rate notes that have been assigned a preliminary ‘A2’/ ‘AA-’/'A' ratings.  All of the notes are due August 2021.

Merrill Lynch International and HSBC Bank are the lead managers. 

The deal is structured with a €30.8 million subordinate loan, which funds the reserve fund and part of the portfolio, that has not been rated.

The transaction pool is comprisedof loans to finance new cars (44.6%) and used cars (55.4%) to private individuals (72.6%) and small enterprises (27.4%), according to a Moody’s report. As of the end of May, the portfolio consisted of 53,612 contracts with a weighted average seasoning of 15.2 months and an outstanding balance of approx. €820.5 million.

Approximately 97.5% of the portfolio are "balloon" loans, which pay equal installments during the life of the loan and a larger balloon payment at loan maturity. This exposes the deal to refinancing risk, according to Fitch. "Should the borrower not be able to refinance the balloon amount (due to a BMW Bank default), nor sell the car for the balloon amount (due to a downturn in the used-car market), the borrower will face a payment shock," the presale report states.

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