Volkswagen has launched a $750 million auto-lease securitization that provides investors with more favorable terms than those it offered in more recent transactions.
The Volkswagen Auto Lease Trust 2020-A is divided into four tranches, comprising a $148 million short-term piece maturing in December 2021 that Fitch Ratings rates F1, and three longer-term tranches of $277 million, $267 million and $58 million that mature respectively in April 2023, January 2024, and July 2025. Those tranches are all rated AAA, and all four pieces carry credit enhancement of 14.25%, according to Fitch, in a Nov. 19 pre-sale report.
The rating agency says that depending on market conditions the principle could be increased to $1 billion, with each tranche increasing.
Citigroup is the structuring lead on the deal, with Credit Agricole, Mizuho Securities, and Societe Generale providing joint-lead support, according to Finsight.
The notes will be backed by a pool of closed-end vehicle leases, all secured by new Volkswagen and Audi brand vehicles and financed through VW Credit Inc., which will also act as servicer.
Volkswagen is launching the deal in a strong market for auto ABS. S&P Global noted in a recent research report that losses and delinquencies fell to record lows in September, though it attributed those drops in part to loan deferrals that delay potential payment challenges.
The Volkswagen deal's weighted average FICO score of 774 is an improvement over its two most recent auto-lease transactions: a $1.3 billion deal completed in October 2019 that had a FICO score of 769, and $1.45 billion securitization in 2015 that had a score of 760, according to Fitch.
Though the Volkswagen deal's FICO is slightly below GM Financial's 776 score on an auto-lease securitization earlier this year, it is above securitizations for Ford Credit and World Omni in 2020, of 754 and 741, respectively.
Initial credit enhancement (CE) at 14.25% and increasing to a target of 15.50% is "consistent with the initial CE at close" for Volkswagen's deal last year, Fitch says, adding initial excess spread is expected to be 5.07%, up from 4.73% last year.
The current transaction has no Libor exposure, a plus given loans priced over Libor may have to transition to a new floating-rate benchmark in 2022, if not before. Fitch notes that lease terms greater than 36 months account for 66.8% of the pool, compared to 47.7% in last year's deal, and 45.7% in the 2015 transaction.
