Hyundai Capital America is the first captive finance arm of a major automaker to enter the 2017 securitization market with an $810.4 million bond offering backed by new-vehicle lease contracts.
Hyundai Auto Lease Securitization Trust 2017-A is a pool of closed-end leases secured by new Hyundai and Kia autos and originated by HCA, the 80%-owned subsidiary of Hyundai Motor America (Kia Motors America owns the other 20%). The aggregate value of the leases’ securitization is $931.5 million, combining the value of the remaining monthly payments and the stated residual value set by HCA.
The deal is the largest lease securitization by Hyundai in two years, since the company’s $964.7 million asset-backed portfolio pooling $1.1 billion in lease contracts in its 2015-A transaction. The latest deal is Hyundai’s 12th overall securitization.
The capital structure of the deal includes four Class A senior note tranches, with the ‘A-1’ one-year money-market series sized at $133.3 million atop the payment waterfall. A $293 million Class A -2A/A-2B split tranche due June 2019 is divided between floating and fixed-rate notes, followed by a Class A-3 slice of three-year senior fixed notes totaling $271 million. A class A-4 series of $80.95 million in senior notes has the lengthiest term through April 2021.
All of the senior notes have preliminary triple-A structured finance ratings from both Fitch Ratings and Standard & Poor’s.
The transaction also adds a $32.14 million Class B subordinate tranche that is rated ‘AA+’ (S&P) and ‘AA’ (Fitch).
The deal is expected to close Jan. 18.
The ratings, as well as initial 16.95% and available 24.26% credit enhancement on the ‘A’ notes, are similar to Hyundai’s previous transactions over the last few years; but it only the third deal that includes a step-down target CE to 17.45% that kicks in with the payoff of the A-2 notes.
The expected credit loss for the pool is forecast between 1.1% and 1.3% by S&P, which Fitch declared at 1.15%. S&P’s cited the “weakening” performance of the managed portfolio (net losses increasing to 0.65% on a growth-adjusted basis) and the potential for lower used vehicle values that drag down residuals in recovery scenarios for the collateral. Return rates of vehicles has also continued to grow, building to 31% through Sept. 30, 2016 from 26% a year earlier.
The mix of vehicles in the pool is slightly more diverse, with only 61.7% of the vehicles including the top five Hyundai/Kia models (Sorento, Sonata, Optima, Elantra and Santa Fe), compared to 66.7% in the 2016-C transaction.
Just over 60% of the leases in the pool are traditional 36-month agreements. S&P noted the deal’s reduced concentration of longer-term leases, which tend to have higher credit losses. The leases with original terms between 37 and 42 months decreased to 1.46% from 5.42% from Hyundai’s last transaction. The percentage with 48-month terms decreased to 35.1% from 37%.
Hyundai’s managed portfolio of leases has grown to $15.8 billion (as of Sept. 30), comprised of 755,696 contracts compared to 680,677 contract totaling $13.9 billion a year earlier.
