Diesel-engine cars are declining in popularity across Europe, but LeasePlan Corp. N.V. is loading them up in its first-ever French fleet lease securitization.
Bumper 10 is a €653 million (US$814.7 million) bond offering backed by auto lease contracts signed by LeasePlan’s French affiliate with large corporate, small/medium enterprises and government agencies. France is the fourth country through which LeasePlan utilizes it's securitization platform, following previously issued asset-backed deals in the UK, Germany and its home country of the Netherlands.
The transaction has a one-year revolving during which new collateral can be added. The initial pool consists of 40,817 open- and closed-end contracts for primarily new passenger vehicle cars (73.9% of the pool) to corporate end-users (75.7%).
These contracts have average discounted balances of €15,998 and weighted average seasoning of 14.83 months with 2.31 years remaining. The weighted average interest rate is 3.4%. The annualized excess spread, or the difference between the interest received and the interest paid out on the notes, is expected to be 3.78%.
Thre classes of floating- and fixed-rate notes will be issued in the transaction, including a €483.2 million Class A series due February 2028 with preliminary triple-A ratings from Moody’s Investors Service and DBRS. The senior notes benefit from 26.4% credit enhancement, higher than the 22.9% for the senior tranche of the sponsor's previous securitization (Bumper 9) issued last June in the Netherlands, LeasePlan’s home country.
There will also be a €40.8 million tranche of Class B notes (rated Aa3 by Moody’s and AA by DBRS) and a €129 million unrated tranche of Class C notes.
A unique factor in the deal collateral is the predominance (94%) of diesel-engine vehicles. DBRS found this contrary to the French auto market's trend against diesel cars, which now comprise less than 50% of the country’s vehicle registrations compared to around 77% in 2008.
Diesels carry two primary risks for auto-lease ABS investors.
Due to jurisdictional restrictions or potential future bans on driving diesels in some urban centers in Europe (including Paris), obligors would have the right to possibly cancel lease contracts contracts early.
Another concern is that the declining European interest in diesels is offsetting the traditional higher residual values these fuel-type vehicles had in comparison to standard gas-engine cars, according to Moody’s. That risk is underscored in Bumper 10, which has a higher-than-average proportion (55%) of receivables expected to be generated from the after-market sales of fleet-car returns.
A comparable German auto-lease ABS by Volkswagen last summer had an 80.2% share in diesel cars, but VW was not banking on any RV receivables to finance those bonds.
But most (86%) of the vehicles in Bumper 10 meet the more stringent Euro 6 emissions standards that have been in effect for new vehicles manufactured since September 2015 across the European Union. And Moody’s cumulative default expectation for the pool is 3%, unchanged from Bumper 9 and below the average for European/Middle Eastern/Asian auto lease ABS deals rated by Moody’s.
DBRS is assuming a 2% default rate for Bumper 10.
The collateral includes a “diverse mix” of vehicle brands and manufacturers that reduces the risk from exposure to a single manufacturer. Renault-brand vehicles (23.9%) and Peugeot (18.54%) comprise the largest concentrations in the pool.
BNP Paribas and Société Générale are lead managers for the transaction.
Presale reports on recent Bumper securitizations in LeasePlan’s other markets – including the UK, Germany and the Netherlands – did not break down the collateral by fuel type. LeasePlan has issued 10 prior securitizations, according to ratings agency reports.