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