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Hyundai increases share of extended terms in $896M lease ABS

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Hyundai Capital America is stepping up the volume of extended-term contracts in its first U.S. auto-lease securitization of the year.

According to presale reports, Hyundai Auto Lease Securitization 2020-A will have a collateral pool with more than a quarter of underlying leases exceeding 43 months – compared to just 19.4% in its previous lease ABS transaction that priced last August.

Meanwhile, shorter-term leases of 37-42 months in the $896 million transaction decreased to 8.95%, from 10.33% in the prior deal, according to S&P Global and Moody’s Investors Service.

About 27% of the leases in the pool have 48-month original terms, resulting in a concentration of lease maturities in the March 2022-May 2022 time frame (or approximately 38-40 months after the deal closes. “If vehicle values are distressed in 2021 and 2022, there is increased risk that the realized residual values will be lower than the base residuals,” S&P wrote in its presale report.

S&P notes, however, that risk is mitigated by the transaction’s sequential payment structure in which both the deal’s overcollateralization level (about $127 million) and reserve account target amounts will not amortize until the notes are paid in full. Excluding prepay or early lease-termination losses, about 80% of the lease residuals will have come due by the time the notes are paid off.

The notes will be secured by a pool of leases with an aggregate securitization value of $1.02 billion. The average remaining lease size is $18,931, owed by prime borrowers with a weighted average FICO of 752 in the pool.

The transaction will feature three classes of senior-term notes, a money-market tranche and an offering of subordinate notes. All of the notes are fixed-rate.

The Class A-1 one-year tranche is sized at $132.6 million, with preliminary short-term A-1+ ratings from S&P and P-1 from Moody’s.

The Class A-2 notes due April 2022 and the Class A-3 notes maturing in July 2023 total $321.85 million each; a Class A-4 tranche due December 2023 is sized at $71.53 million. All carry early triple-A ratings.

The Class B tranche due May 2024 will have $45.97 million outstanding, with provisional Aa1 ratings from Moody’s and AA+ from S&P.

HCA is the captive finance arm of South Korean automakers Hyundai Motor America and Kia Motors America, with majority ownership stakes held by Hyundai’s U.S. arm. It underwrites and services auto-loan and lease contracts underwritten through Hyundai and Kia franchised dealerships.

Barclays is the lead underwriter.

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