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Lower resale values forecast in GM Financial's new $1.24B lease ABS

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GM Financial second auto lease securitization of 2018 is supported by borrowers with the higher weighted average FICOs than any of its prior 12 transactions. But rating agencies have also assigned lower resale value expectations for the vehicles being pooled in the $1.24 billion transaction.

GM Financial Automobile Leasing Trust (GMALT) 2018-2 will issue five classes of senior notes totaling $1.09 billion, including a $177 million money-market tranche and four term tranches with preliminary AAA ratings from Fitch Ratings and S&P Global Ratings. There are two tranches of two-year Class A-2 notes, one fixed- and one floating-rate, adding up to $435 million; a three-year Class A-3 tranche ($399 million); and a four-year Class A-4 tranche ($79.8 million).

Initial credit enhancement for the senior tranches has slightly increased to 20.45% from the 2018-1 level of 19.9%, involving slightly higher levels of overcollateralization on an aggregate securitization value of $1.36 billion.

There are also three subordinate tranches of notes.

As in the sponsor's prior transaction (GMALT 2018-1), the notes will be backed by leases originated by the General Motors captive-finance subsidiary.

Neither agency changed expected loss levels for the new transaction from the previous deal it has rated. S&P's remains at 0.9% from its analysis of the GMALT 2018-1 transaction, while Fitch maintains a 1% expected loss figure from the last GMF lease deal it rated (GMALT 2017-3)

Fitch did provide a high loss assumption on the resale value of the vehicles to 12.2% from 11.85%, “driven by pool shifts in pool composition, namely increased 48-month term leases and higher concentration in luxury brand vehicles.”

The leases were originated at Chevrolet, Buick, GMC and Cadillac dealerships across the U.S.

S&P says there are no material changes to the transaction from GM's prior deal. There is a slight elevation in weighted average FICO to 772, representing the highest ever for the shelf from its 12 prior lease securitizations.

There percentage of leases with higher-risk original terms greater than 36 months increased to 54% from 43%. Passenger cars make up 17.3% of the pool, down from 18.2%, and crossover utility vehicles make up more than half of the pool’s concentration at 50.5%.

Higher concentrations of light-duty trucks, SUVs and CUVs could expose the transaction to risks of rising fuel prices that could cause fluctuating consumer demand and lower post-lease resale values of the vehicles. But GM has lower concentrations of CUVs than recent lease securitizations of peer captive finance lenders Ford Credit and Hyundai Capital America.

GM Financial is a wholly owned subsidiary of GM and the d/b/a of AmeriCredit Financial Services. It has been originating consumer leases since 2010.

Barclays is the lead underwriter of the deal.

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