GMAC U.K., General Motors’ U.K. affiliate, has added a new type of auto lease to its latest E-CARAT transaction.

Personal contract purchase leases comprise 20% of the pool of collateral for E-CARAT 5. These leases require an initial deposit and a series of monthly payments that cover the vehicle’s depreciation. At the end of the lease, borrowers can either purchase the vehicle with a final balloon payment or return it to the finance company.  The finance company then undertakes to sell the vehicle.

If a borrower decides to hand back the vehicle at the end of a PCP contract, the transaction is exposed to residual value risk; the vehicles’ resale value may be lower than the value implied by the balloon amount, according to Standard & Poor’s presale report.

The remaining 80% of the collateral are conditional sale (CS) leases, where the title of the vehicle remains with the lender until final payment has been made. GMAC U.K.'s previous four public auto lease securitizations are backed entirely by CS leases.

Among other characteristics of the collateral for E-CARAT 5, the auto lease receivables total £400 million ($590 million) and finance mostly new GM vehicles that have on average of four months season and a weighted average remaining term of four years.

The trust will issue two tranches, both denominated in GBP, will be sold.  S&P and Moody’s Investors Service have assigned preliminary ratings to the deal. The series A notes will be rated ‘Aaa’/ ‘AAA’ and the series B notes will be rated ‘A2’/ ‘AA’.  The class A notes have credit enhancement at 13/5% and the B notes have credit enhancement at 6.1%

An additional subordinate tranche is also structured that will offer extra credit support for the class A and B notes. The notes mature on April 2023.

Lloyds Bank, Bank of America Merrill Lynch and RBC Europe have been mandated to lead the transaction.

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