Mercedes-Benz Financial Services, the U.S. captive finance arm of Daimler AG, has been making truck and transportation equipment loans in the U.S. since at least 2008, but until now it has now funded them in the securitization market.

The inaugural transaction, Daimler Trucks Retail Trust, Series 2018-1, is backed by 6,857 loans with a total balance of $835 million, or roughly 13% of the $6.4 billion of commercial vehicle and equipment loans in Mercedes-Benz Financial Services USA’s managed portfolio, according to Moody’s Investors Service.

As you’d expect for a first-time deal, the pool of collateral is highly seasoned, with a weighted average age of 18 months. About 30% of the pool is 13-24 months seasoned and 29% of the pool is more than 25 months seasoned.

Bloomberg News

Among other strengths of the deal, according to Moody’s is the fact that the pool is very granular. The 6,857 contracts are from 4,874 unique obligors with average contract balance of $121,773.

Notable risks to the deal include the fact that the pool of collateral has a slightly higher exposure to balloon payments, which account for approximately 11% of the pool. “Balloon loans are generally subject to higher default risk than fully amortizing loans, because in a balloon loan the obligor might need to, but be unable to, refinance a relatively large remaining loan balance when the loan matures,” the presale report states.

Also, the static pool data provided by MisBFS USA only goes back to 2012 and does not cover performance through the recent financial crisis, unlike other equipment ABS. This introduces additional uncertainty around the losses related to MBFS USA's portfolio, although Moody’s thinks that this is partially mitigated by a supplemental analysis of static pool loss data during the financial crisis from comparable originators.

The rating agency estimates that the portfolio experienced an average delinquency of 1.49% and average net loss of 0.82% from 2008-2017, based on the total principal amount outstanding. It expects cumulative net losses of 1.50% over the life of this transaction.

Four tranches of notes will be issued, a money market tranche and three term tranches with preliminary Aaa ratings with legal final maturities in May 2020, July 2021 and November 2024. All four tranches benefit from initial, hard credit enhancement of 10% as well as 9.75% overcollateralization and a reserve account equal to 0.25% of the balance of the collateral pool.

Bank of America Merrill Lynch is the underwriter.

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.