BMW's $1B auto-loan ABS faces slight stresses from COVID-19 impact
The COVID-19 impact on loans issued by BMW’s North American captive-finance arm has yet to manifest itself in the company’s next $1 billion securitization, nor its nearly $16 billion managed portfolio.
But near-term economic stresses are likely to slightly impact the auto lender’s new prime auto-loan asset-backed transaction in the months ahead, as jobless levels remain elevated and borrower payment deferrals mount – a fate afflicting U.S. auto ABS issuers across the board such as Honda, Hyundai, Ford and Volkswagen.
In a presale report issued Monday, S&P published a higher cumulative net loss range on BMW Vehicle Owner Trust (BMWOT) 2020-A, in comparison to the lone securitization sponsored by BMW Financial Services a year ago. The 0.9%-1.1% range increased from 0.55%-0.65% from the $1.25 billion BMWOT 2019-A that priced last September. Heightened expected loss levels have been featured in all auto ABS deals since the new-issue-market for securitizations thawed in April, in reaction to the early economic shocks of COVID-19.
While S&P’s report did not indicate whether any of the 37,199 loans in the pool are in deferment, the ratings agency took into consideration its expectations for the potential increased levels of contract extensions provided to borrowers in the event of unemployment or other economic stresses brought by the coronavirus pandemic in the U.S. Such extensions, which can forbear payments between 60 and 120 days, result in decreased bond payment collections for investors.
In a June research report on the auto ABS market, Moody’s Financial Services noted the percentage of borrowers industrywide seeking an auto-loan extension in April increased to 8.5% from 4.8% in March. Growing levels of extensions add the risk of slower paydowns for ABS noteholders and lower levels of credit enhancement that typically build up protections for investors as deals age.
Moody’s expects elevated levels of extensions for auto loans held in ABS portfolios (including both prime and non-prime) through the third quarter.
But the onset of the pandemic has thus far not derailed auto ABS issuance, which totaled $49 billion in the first half of 2020. Another $51 billion projected through year's end, according to market research issued by Deutsche Bank last week. Two factors are aiding the issuance new auto-loan and lease ABS deals in the market: the "rapid" recovery of used-car prices that benefit ABS collateral, according to Deutsche, as well as the Fed's support of auto asset-backed securities purchases through its second-generation Term Asset‐Backed Securities Loan Facility (TALF) program.
New auto ABS deals are in the pipeline for General Motors' GM Financial and Santander Consumer USA, according to ABS-15G disclosure reports filed with the Securities and Exchange Commission.
The BMWOT 2020-A loans are more seasoned at 13.23 months compared to prior BMW deals. All of the loans in the pool, which have remaining balances averaging $28,350, are for new and near-new passenger vehicles and light-duty sport utility vehicles sold at BMW of North America franchised dealers.
The weighted average FICO of 784 is unchanged from BMWOT 2019-A, according to S&P, but the weighted average APR is up slightly to 3.35% from 3.12%. The concentration of used loans decreased to 29.49% from 31.81%, and the share of crossover/SUV vehicles increased to 49.91% of the pool from 46.79% last year.
The lender’s $15.69 billion managed portfolio (consisting of 656,079 contracts) had a slight decrease in its historically low delinquency rate, shifting to 1.51% as of March (prior to the impact of the coronavirus pandemic) from 1.58% a year ago.
BWWOT 2020-A consists entirely of senior notes, similar to most of BMW Financial Services’ 15 securitizations since 1999. The Class A-2 notes due February 2023 total $360 million; the Class A-3 notes maturing in October 2024 total $350 million; and the Class A-4 notes tranche due April 2027 is sized at $95 million. All carry preliminary AAA ratings.
The A-1 money-market class of notes totals $195 million, and has S&P’s highest short-term A-1+ rating.
All of the notes benefit from 7.6% credit support. To further buoy against investor losses, BMW raised the reserve account for potential cash-flow shortfalls to 1% from 0.25% in prior BMW auto-loan securitizations.