A $1.2 billion vehicle lease securitization sponsored by BMW Financial Services NA could push U.S. auto-lease ABS volume to its second-highest quarterly level in the past decade.
BMW’s transaction would grow first-quarter deal issuance to approximately $6.5 billion, the most since $7.6 billion in lease ABS deal were underwritten in the first quarter of 2015, according to Finsight.com.
BMW Vehicle Lease Trust (BMWLT) 2019-1, slated for a March 20 closing, would be the sixth securitization of auto lease receivables by an automotive captive-finance firm this year. It's also the 22nd auto-lease offering since 1999 by the German automaker, and its first since a $1 billion issuance in October 2018.
BMW’s trust will issue three classes of term notes with preliminary triple-A ratings from Moody’s Investors Service and S&P Global Ratings: a Class A-2 tranche totaling $342.5 million is due March 2021; a similarly sized Class A-3 notes tranche with a November 2021 maturity; and a Class A-4 tranche due August 2022 totaling $115 million.
A tranche of $200 million in Class A-1 money-market notes is unrated.
According to ratings agency presale reports, BMW Financial Services is pooling 34,978 leasing contracts that have an average securitization value of $33,302, or $1.164 billion in total.
The notes will be paid from receivables paid into a titling trust sponsored by BMW FS which owns the pool assets, including the vehicles. The notes are backed by a beneficial interest certificate in the titling trust, similar to other auto-lease securitization arrangements.
BMW’s collateral pool is traditionally of strong quality, with the new deal’s weighted average FICO of 789 matching that of BMW’s 2018 transaction (and the highest-ever FICO mark attained by the BMW shelf).
Expected loss levels of 0.5% by both Moody’s and S&P are the same as those from BMW’s 2018 deal.
The Moody’s report stated the deal’s primary risk is the uncertain future resale values of BMW’s luxury vehicles. BMW Financial Services traditionally has high return rates, but last year (through Sept. 30) that level fell to 84% from 96% in the first three quarters of 2017.
BMW for three years has experienced losses on vehicles returned to the manufacturer at the end of leases, including 2018, when the average loss was $1,131, or 4.1%, of the average residual value estimate published by Automotive Lease Guide. (Moody’s itself does not estimate RV losses on vehicle-lease securitization.)
