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Hyundai moves upscale in its next $707.8M lease ABS

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Hyundai Capital America is including the new Genesis line of luxury sedans to its latest auto-lease securitization, according to presale reports.

The 707.9 million pool of auto leases for new Hyundai- and Kia-branded vehicles is being supplemented with leasing contracts for new G80 and G90 sedan models produced by the South Korean automaker's standalone luxury auto unit launched in 2015.

According to S&P, the pricier Genesis models (base prices of approximately $41,000 for the G80 and $68,000 for the G90) make up 4% of the Hyundai Auto Lease Securitization Trust 2018-B collateral pool, which is backed by the lease payments and future resale values of 42,931 contracts totaling $809 million.

The transaction is the second this year for HCA, and the 15th overall since the captive-finance arm began securitizing leases in 2011.

The securitization trust will issue three tranches os senior, Class A notes with staggered maturities totaling $568.8 million, each rated triple-A by S&P Global Ratings and Moody’s Investors Service. The agencies also applied double-A ratings to the Class B tranche ($36.4 million) and short-term A-1+/Aa1 ratings to a $102.7 million money-market tranche.

The Class A-2 notes due 2020 are the largest tranche at $270 million, and will be split between fixed- and floating-rate tranches in a ratio to be determined. The Class A-3 notes that mature in 2021 are set at $230 million, and the four-year Class A-4 bonds total $68.8 million.

The total securitization value of the deal is $809 million, based on the lease payments as well as the expected end-lease value of the vehicle (or residual value) when an owner has the option of turning in their car or SUV/crossover.

Moody’s reported that HCA, as in its first lease transaction in 2018, is estimating a base residual value of the pool at a conservative level (43.3% of the MSRP of the vehicle), which helps “limit exposure to [residual value] losses stemming from declines in vehicle values.” That level is below that of rival auto lessors, which have end-lease values of up to 51.6% of sticker prices.

(Moody’s and S&P both use future resale value forecasts provided by an industry publication, Automotive Lease Guide.)

The average lease value is $18,844 on contracts that average 39 months, underwritten to prime obligors with a weighted average FICO of 746. The leases average nine months of seasoning, as well.

The model concentration mix remains largely unchanged from recent deals, with the Hyundai Elantra sedan and two SUV models (the Kia Sorento and Hyundai Tucson) each accounting for 12% of the pool’s securitization value. However, the percentage of cars increased to 48.9% of the pool from 45.15%, with the inclusion of the Genesis full-size and executive passenger sedans in the mix.

Irvine, Calif.-based HCA is co-owned by the U.S. distributor operations of Hyundai and Kia, with Hyundai controlling 80%. (The South Korean parent of Hyundai owns 34% of Kia.)

Moody’s forecasts a 1% net loss on the deal, in line with prior Hyundai lease transactions, and S&P has a 1.15% loss projection that is unchanged from Hyundai’s 2018-A lease ABS issued in February.

The deal’s lead underwriters are Citigroup, HSBC, Mizuho Securities and TD Securities.

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