Capital Automotive is marketing another $900 million of bonds backed by leases on auto dealerships.
The offering consists of three tranches totaling $865 million with provisional A+ ratings from Standard and Poor’s and a $35 million tranche rated BBB.
Credit Suisse Securities and Barclays Capital are the bookrunners.
The notes are backed by 163 properties that the sponsor, Capital Automotive, acquired and leased back to 44 dealer groups.
These leases are “triple-net,” meaning the tenant is required to pay all property-level expenses, including business expenses, real estate taxes, utilities, insurance, and repairs and maintenance, much of which would more typically be paid by the landlord. They generally have 15- to 20-year initial terms with multiple and multiple five- and 10-year renewal options.
The biggest exposure is to Sonic Automotive (17.27%), Asbury Automotive Group (11.63%), Penske Automotive Group (10.92%), Atlantic Automotive Group (7.70%), and Group 1 Automotive (3.89%).
The securitization trusts (there are eight: CARS-DB4, CARS-DB5, CARS-DB6, CARS-DB7, CARS-DB8, CARS-DB10, CARS-DB11 LLC and CARS CNI-2) have the ability to issue additional series secured by the entire pool at a future date. S&P’s presale report indicates that there are several series outstanding that were issued in 2011, 2012, and 2014, though it does not provide the total balance.
The latest offering comes as auto sales appear to have peaked. “Although the U.S. continued economic recovery has been broadly supportive, we believe that declining retail demand, the increased use of incentives, and the potential that the lending environment will soon become less favorable will likely limit the growth prospects for auto sales beyond current levels,” the presale report states.
“In our view, increased interest rates could reduce auto sales volumes, adversely affect automakers' vehicle mix (as affordability will shrink), and cause some aggressive lenders to attempt to further increase the length of their auto loans to maintain affordability for their customers.”
That may help explain why S&P did not assign its top rating, AAA, to the senior tranches of the deal, as it did in the 2014 transaction.