BMW readies 2nd German auto ABS of 2017

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BMW Bank Gmbh is securitizing €799.9 million (US$958.8 million) of German auto loans through its Bavarian Sky platform, according to a presale report by Moody’s Investors Service.

The deal, dubbed Bavarian Sky S.A., Compartment German Auto Loans 7, is still unsized. Two tranches of euro-denominated notes will be issued; the Class A tranche, provisionally rated Aaa, accounts for 93% of the deal and the unrated Class B tranche accounts for 7%.

The Class A notes benefit from total credit enhancement of 7.5% (in line with previously Bavarian Sky deals), provided by subordination, and a non-amortizing cash reserve.

All of the notes have a final maturity in October 2024.

Because the loans are fixed-rate and Class A notes pay a floating rate of interest, BMW Bank Gmbh arranged a fixed rate swap agreement for the entire Class A notes series with Skandinaviska Enskilda Banken.

All loans were originated and serviced by BMW Bank Gmbh. The loans have an average balance of €18.5k (US$22.1k) and went to 39,698 borrowers. They are secured by a pool of new (46.8%) and used (53.2%) cars, according to the presale report.

Among the strengths of the deal, according to Moody/s is the fact that the pool of loans is “highly granular,” with the largest 10 and 20 largest borrowers representing 0.65% and 0.86% of the pool, respectively. The portfolio also benefits from a good geographic diversification across Germany.

However, the loans overwhelmingly feature balloon payments (98.8% of the pool), which is similar to previous auto loans offered by BMW Bank Gmbh. In these balloon loans, 59.14% of the principal will not be repaid until after the bond reaches its legal maturity. Moody’s expects higher defaults on balloon loans in a manufacturer default scenario and reports this as a credit risk.
The rating agency expects 3.70% of loans to default over the life of the deal and recoveries to average 45%.

The presale report indicated the inclusion of diesel-engine vehicles as another risk because of the increasing number of European metropolitan areas that have restricted or banned diesel vehicles.

This is BMW Bank’s seventh prime auto loan securitization, with the previous being an €800 million issuance last May.

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