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GM Financial boosts crossover/SUV mix in $1.3B lease ABS

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GM Financial’s first vehicle lease-backed transaction of the year features its highest-ever mix of crossover/SUVs included among 12 prior transactions on the lease platform.

GM Financial Automobile Leasing Trust 2018-1 is a $1.36 billion transaction, pooling 56,399 three-year leases with an average balance of $24,156. Nearly 82% of the contracts are for SUV/crossover vehicles and trucks, the first time the balance of passenger cars in a GM leasing securitization fell under 20%.

Crossovers alone making up 51.7% of the vehicle contract balances in the pool, an increase from 49% in GM's prior 2017-3 transaction.

The senior portion of the transaction’s $1.25 billion capital stack includes a $156 million money-market tranche, rated A-1+ by S&P Global Ratings and P-1 by Moody’s Investors Service, along with four series of Class A notes of variable maturities. The two-year, Class A-2 notes are to be split into fixed- and floating-rate tranches that together will total $400 million. The largest tranche, the three-year Class A-3 notes due January 2021, is sized at $445 million, followed by a $97.1 million Class A-4 issuance maturing in December 2021.

All the Class A notes have preliminary triple-A ratings and supported by 19.9% credit enhancement, including an overcollateralization cushion totaling $112.4 million, equal to 8.25% of the total pool of receivables.

Also being issued by the trust are three subordinate note classes with four-year maturities: $59.3 million in Class B notes (rated AA+ by S&P, Aa1 by Moody’s); a $55.2 million Class C bond tranche rated A+/A1; and a $37.47 million Class D series rated A/A1.

The collateral mix, after crossovers, includes trucks (19.8%), passenger cars (18.2%) and SUVs (10.3%). Four of the top five vehicle types are newer-model crossovers, including the Cadillac XT5 CUV launched in 2016 (making up 7% of the pool balance , and three models which had second- or third-generation makeovers released in the past year: the Chevrolet Equinox (13%), Chevrolet Traverse (7%) and GMC Acadia (6%).

Having more of the popular (and higher-priced) crossovers in the mix also gave GM Financial its highest-ever discounted base residual rate (63.4%) on the expected resale value of vehicles returned after the average 36-month leases expire.

Moody’s expects net losses to reach 0.5% of the initial balance over the life of the transaction, which is in line with recent securitizations and well below 1% for 2014-vintage GMF lease deals. Moody’s said recent GMF securitizations have performed better than expected.

One possible reason: GMF is retaining leases longer before bundling them into collateral for bonds. The leases backing the latest deal have been seasoned nine months, on average, more than twice as long as GMF lease securitizations in 2015 and early 2016.

S&P's expected loss scenario is unchanged at 0.9%.

GM Financial’s lease platform has averaged three issuances a year from its $41.4 billion managed portfolio, which has increased nearly eightfold since 2014, when it became the exclusive captive-finance arm for GM dealers eligible for factory incentives, supplanting Ally Bank, the former GMAC subsidiary of the automaker.

But residual loss values have grown in the last two years in its managed lease portfolio. Losses totaled 8.09% at the end of the third quarter, compared with 7.04% at the same point in 2016.

The pool's weighted average FICO of 759 is similar to the third and final GMF lease transaction of 2017, when that figure took a decided jump upward from previous deals under the shelf that previously ranged between 739 and 755.

Besides having a more diverse model concentration, the deal also has a more widely dispersed lease maturities than prior GMF transactions. The top five quarterly periods with leases coming due during the life of the transaction make up just 72% of the pool, versus up to 85% in prior deals.

Deutsche Bank is the lead underwriter.

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