GM's next auto lease ABS features shorter, more staggered maturities
GM Financial is front-loading early maturities into its next auto-lease securitization, somewhat stemming the impact of falling resale values last year in its off-lease vehicles.
The $1.22 billion GM Financial Automobile Leasing Trust (GMALT) 2019-1 is an offering of two- and three-year bonds backed by receivables from 55,000 lease contracts with weighted average original terms of 37 months.
But the leases have been seasoned an average of 13 months, giving the deal among the lowest average remaining terms – 24 months – among all of GMF’s 15 previous lease securitization.
The deal also has a larger-than-normal share of contracts (14.1% of the pool) expiring in the first year after the transaction’s close, which helps limit exposure to declines in the values of cars that come off lease. As a result, the deal’s initial excess spread can more easily absorb any losses, according to a presale report from Moody’s Investors Service.
GM also has presented investors with a more staggered lease-maturity distribution schedule, which can help against high concentrations of off-lease vehicles in any particular quarter. The five quarters with the most expiring contracts make up only 63.9% of the pool’s total value of contracts, according to Moody's.
Previous GM deals had concentrations as much as 85% in the top five quarters.
Future resale values in lease pools are more difficult to project further into the life of a deal, according to ratings agencies.
While prior deals have had strong performance with consistent gains on the resale values of lease returns, Moody’s notes the new deal has slightly weaker residual values in certain high-concentration models. In addition, the company’s $45 billion lease portfolio showed increased residual value losses of 12.47% on returns vehicles in the first nine months of 2018, compared to 9.07% in residual losses against market book values in Auto Leasing Guide in the same period in 2017.
The prime collateral credit quality of the pool remains strong with a weighted average FICO of 775, which is the highest of all previously rated GM lease deals, stated Moody’s presale report (previous pools were between 720 and 772).
There remain concerns about high levels of lease returns in the next two years impacting used-car values, meaning Moody’s applied a 36.5% haircut to the issuer’s expected future market values of the vehicles in the pool – and that has raised its expected worst-case net loss level on the deal by 50 basis points to 21.5% (3.5% credit loss and 18% from vehicles’ lease-end market value) versus what it projected for GM Financial’s previous lease ABS deal (GMALT 2018-3) last September.
For GMALT 2019-1, S&P is maintaining an expected net credit loss of 0.8% that was also estimated for the GMALT 2018-3 pool.
GM Financial’s managed portfolio of nearly 1.6 million lease contracts held about $45 billion in receivables as of Sept. 30, up from $41.4 billion a year earlier, according to Moody’s.
Both Moody’s and S&P Global Ratings have assigned preliminary triple-A ratings to four classes of terms notes in the new transaction. A $409.2 million Class A-2 tranche is split between fixed- and floating-rate notes with a final maturity of April 2021. A Class A-3 tranche is sized at $357.82 million due December 2021. The Class A-4 notes offering totals $92.2 million, and matures in December 2022.
All of the senior term notes, as well as a Class A-1 tranche of money market notes totaling $215 rated A-1+ by S&P and P-1 by Moody’s, benefit from 19.9% credit enhancement.
GM also plans to issue $58 million in double-A rated Class B notes due December 2022, $54 million in Class C notes with a single-A rating (also due December 2022) and a subordinate Class D notes tranche totaling $33.3 million with a May 2023 maturity. The D notes are rated Baa2 (Moody’s)/A-(S&P).
Hyundai Capital America is also launching a lease-backed securitization for receivables through its Hyundai Auto Lease Securitization Trust backed by receivables on vehicles contracted through U.S. Hyundai and Kia dealerships.
The $710 million transaction has three, triple-A rated senior-note term tranches: a $255 million Class A-2 tranche due July 2021, another $255 million tranche of Class A-3 notes due July 2022, and a $59.13 million Class A-4 tranche due December 2022.
Hyundai’s trust will also issue a $104.9 million money-market tranche, plus a $36.54 million Class B notes tranche with double-A ratings.
The deal is rated by Moody’s and S&P, and was undewritten by Citigroup.
Both deals follow-up January’s initial auto lease deal for 2019: the $1.32 billion Mercedes-Benz Auto Lease Trust of more than 38,000 contracts of vehicles leased through the Daimler AG-owned automaker’s U.S. dealer network.