Hyundai Motor Co. is prepping its fourth U.S. auto lease securitization, according to a presale report published by Fitch Ratings.
The $671.979 2014 Hyundai Auto Lease Securitization Trust (HAST) 2014-A is backed by a pool of closed-end vehicle leases, all of which are secured by new vehicles manufactured by Hyundai Motor Co. and its subsidiary Kia Motor Co.
Barclays Capital is the structuring lead manager.
The trust will issue a single, $110 million money market tranche with a preliminary F1 rating; three tranches of notes with preliminary AAA ratings: a $228.9 million tranche maturing in July 2016; a $238.9 million tranche maturing in April 2017, and a $67.8 million tranche maturing in September 2017; and a $26.7 million tranche with a preliminary AA’ rating maturing in July 2018.
Initial hard credit enhancement will be 16.95% and 13.50% for class A and B notes, respectively, growing to 18.95% and 15.50% of the initial securitization value. Initial excess spread is expected to be 4.74%.
This will be Hyundai’s first auto lease securitization of 2014. The automaker priced $1.3 billion of prime auto loan ABS in January, but it hasn’t done an auto lease deal since August 2013.
In its presale report, Fitch noted that credit quality of the lessees and geographic concentration of leases is stable, compared with previous deals.
However the rating agency warned that “unprecedented levels” of Hyundai and Kia used vehicle supply could impact prices of cars coming off lease, potentially reducing funds available to the trust when these vehicles are sold.
“Due to low historical lease origination and vehicle return volumes, there has been a substantially lower supply of Hyundai and Kia used vehicles available on the secondary market,” the report stated. However, “over the next few years, used vehicle return volumes for Hyundai and Kia are expected to increase dramatically from historical levels; this could put downward pressure on prices and residual realizations.”
As of year-end 2013, HCAs managed portfolio of more than 510,000 leases totaled $9.92 billion. This represents an increase of approximately 14 times from the 45,000 leases and $698 million at year-end 2007.
To account for this risk, Fitch incorporated an “additive haircut” of 3.00% for AAA’ scenarios and 2.00% for AA’ scenarios