Mercedes-Benz spreads out maturities in next auto lease ABS
Mercedes-Benz Financial Services USA is minimizing exposure to maturity concentrations in its next U.S. auto lease securitization.
The $1.034 billion Mercedes-Benz Auto Lease Trust (MBALT) 2018-B is one of the “most diversified MBALT lease pools to date with regard to lease maturities,” limiting the exposure to a decline in the used car prices when vehicles come off lease, according to S&P Global Ratings.
In its presale report, S&P noted that there is only a single month of the life of transaction when more than 5% of leases mature. About 24.5% of the contracts (by initial base residual value) mature in 2018 and 2019; 40.5% in 2020 and 35% between 2021 and 2023.
MBALT securitizations sponsored by the Daimler AG indirect affiliate are more sensitive to maturity concentrations given the high return rate on leased Mercedes-Benz models (91% in 2017 and 2018) and the rising levels of residual value losses that the captive-finance arm for Mercedes-Benz U.S. dealers has experienced since 2013.
MBALT 2018-B is the lender’s second auto lease securitization of the year, following up a $1.3 billion transaction in January.
Four classes of senior notes will be issued; S&P and Fitch Ratings have assigned preliminary triple-A ratings to $345 million in Class A-2 notes with a two-year legal maturity, a $365 million Class A-3 tranche due September 2021 and $90.02 million in Class A-4 notes due 2024.
The capital stack also includes a $234 million money market account that is rated A-1+ by S&P and F1+ by Fitch.
The notes are supported by 14.25% initial credit enhancement, down slightly from 14.5% in the earlier MBALT 2018-A transaction. Credit enhancement also includes a 0.25% reserve account and initial excess spread of 4.3%.
The weighted average FICO of obligors in the pool is 788, up slightly from the prior deal, while the WA seasoning of 14.5 months is an all-time high for the transaction, according to S&P. The pool primarily consists of passenger vehicles (59%) compared to the 41% share of SUVs.
The aggregate balance of the leases is $1.2 billion, with average securitization value of $40,700 per vehicle on 29,542 leases. The weighted average original term is 38 months, with 14.5 months of average seasoning representing a new high level for the platform, according to S&P.
The lender’s managed lease portfolio as of Sept. 30 was $22.95 million, with an average outstanding balance of $23,018 among 491,240 contracts. Net losses are only 0.28% this year.
Fitch Ratings reported that residual value losses from MBFS leases have trended higher over the past three years, “specifically” for the compact Class C and midrange Class E models. Both agencies said the higher RV losses are partially a result of an industrywide surge in lease returns that is impacting used-car resale values.
In 2018, Mercedes-Benz Financial Services has had an average loss of $2,240 per vehicle on lease returns, compared to $544 in 2017.
The lower-cost Class C models (which have a starting MSRP of $41,400, according to U.S. News & World Report) represent the largest segment at 19.69% of the pool. Fitch said that mitigates the risk of potential declines in luxury vehicle values, for a pool in which 59% of the 2018-B collateral contain sticker prices above $60,000.
JPMorgan is the lead underwriter.