BMW Vehicle Lease Trust's second deal of the year issues at least $1 billion in asset-backed bonds secured by a pool of 21,204 auto lease contracts extended to prime borrowers.
The note balance can be upsized to $1.2 billion in auto ABS, according to Moody's Ratings, and the pool size can be increased to 26,514 contracts. Beyond that, the capital structure and pool characteristics will remain the same, according to the rating agency.
BMWLT 2024-2 will issue notes through a structure of five class A notes, all of which benefit from total initial hard credit enhancement representing 15.15% of the pool balance. Initial overcollateralization and reserve balances represent 14.9% and 0.25% of the pool balance, according to Moody's.
The most senior tranche, A1, has a maturity date of Oct. 27, 2025; the A2a and A2b notes mature on Jan. 25, 2027; the A3 notes mature on Oct. 25, 2027; and the A4 notes mature on Feb. 25, 2028. BMWLT 2024-2's notes will be benchmarked to the TKTK, except for the A2b notes; which will be priced against the Secured Offered Financing Rate (SOFR).
BMW is considered a financially strong manufacturer, which makes it unlikely that a bankruptcy could result in residual value losses. The company is also an experienced servicer and sponsor, Moody's said. The rating agency added that it expects the pool to experience 0.50% in cumulative net credit losses.
One of the major potential risks in the portfolio involves residual value depletion in luxury and battery electric vehicle (BEV) models, Moody's said. BEVs have historically had greater residual value volatility, because they are more exposed to technology risk. Rapidly improving technology from one model year to another could reduce existing cars' resale value on used BEV cars. There is also limited historical data around used BEV prices.
Moody's applies a high residual value haircut to determine the loss at the Ass stress level, to help mitigate that risk, it said. All the cars in the collateral pool are new, have a weighted average (WA) FICO score of 799 and a residual term of 28 months. A slight majority of the pool, 59.1%, are trucks.
Moody's assigns P1 to the A1 notes, while the rest of the notes in the transaction are rated Aaa.
