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GMF projects lower vehicle resale values in next $1.26B auto lease ABS

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GM Financial is supporting its next auto-lease securitization with similar credit enhancement standards to its prior pre-COVID asset-backed offerings.

But the captive-finance lender for General Motors is also providing lower expectations for the future residual on the leased vehicles collateralized in the $1.26 billion GM Financial Automobile Leasing Trust 2020-2 – in recognition of the likely severe recessionary impact of the coronavirus outbreak.

According to S&P Global Ratings, GM Financial’s 2020-2 auto-lease ABS transaction has “materially lower” future residual value estimates of 69.7% of the initial aggregate securitization value of the 53,180 vehicles in the pool compared to 73.8% in GMF’s prior auto-lease deal in February of this year.

As a percentage of vehicle MSRP (with all vehicles leased in new condition), the residual value decreased to 44.6% from 45.5%. Along with monthly contract payments from lessees, the future resale values of leased vehicles are included as the receivables securing the notes offered by GMF’s trust.

“Conservative residual value settings reduces the loss experienced when turned-in vehicles are sold for lower values normal,” according to a presale report issued by Moody’s Investors Service.

Both Moody’s and S&P have assigned preliminary ratings to the notes, including four classes of senior notes. Three of the senior-term notes (Class A2 notes totaling $460 million, A3 notes totaling $429 million and $90.14 million in A4 bonds) have early triple-A ratings from the agencies; a $128 million money-market tranche has each agency’s highest short-term rating (A-1+ by S&P, P-1 by Moody’s).

The Class A2 notes due October 2022 will be split between fixed-and floating-rate tranches. The Class A-3 notes are due July 2023 and the A-4 notes in July 2024.

GMF is also marketing three tranches of subordinate notes: a $59.76 million Class B tranche due July 2024 with AA+/Aa1 ratings from S&P and Moody’s, respectively; a Class C offering of $55.63 million in notes also maturing in July 2024 with A+/Aa3 ratings; and a $34.34 million Class D tranche rated A/Aa3 due December 2024.

The latest transaction, with Barclays as lead underwriter, is GMF’s 19th auto-lease transaction.

The collateral pool is made up almost entirely of light-duty pickup trucks and sport-utility/crossover vehicles. The Chevrolet Equinox model (19% of the pool by securitization value), the Chevy Silverado (13%), the Cadillac XT5 crossover (7%), the GMC Terrain (also 7%) and the Chevy Traverse (5%) represent the five top lease models in the pool. The 52% concentration of the top five models is lower than the typical 55%-755 range of typical non-luxury auto-lease securitizations, according to the ratings agencies.

Lessees have a weighted average FICO of 771, with WA original terms of 38 months. The contracts have an average of 11 months seasoning.

GMF’s deal is the 9th auto-lease securitization of the year, and would add to an existing deal-volume tally of $7.68 billion. Auto-lease securitizations have fallen behind the pace of 2019 issuance that had a record post-crisis level of $20.7 billion, according to data from Finsight.

The pandemic impact on the market has contributed to the slower activity, as well as concerns heading into 2020 about high industry levels of near-term lease maturities that could flood dealers with used vehicles with potentially volatile prices.

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