Mercedes-Benz limits maturity concentrations in new U.S. auto-lease ABS offering

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Mercedes-Benz Financial Services USA’s second auto-lease securitization of the year limits the concentrations in vehicle contract maturities, reducing the potential impact residual value losses on vehicle returns in any given month.

According to presale reports, Mercedes-Benz Auto Lease Trust (MBALT) 2019-B will have only two months over the life of the deal in which there is more than a 5% concentration of expected lease maturities.

The month with the highest exposure to expected lease maturities in March 2022, affecting 6.22% of the pool. “The series 2019-B lease pool represents one of MBFS USA's most diversified MBALT lease pools to date,” according to a presale report from S&P, which is mostly concerned with concentrations that exceed 5%.

The new MBALT 2019-B transaction, via lead arranger Credit Agricole, will issue either $1.02 billion or $1.28 billion in notes, dependent upon a decision to possibly upsize the deal at closing.

Both S&P and Fitch have assigned preliminary AAA ratings to three classes of term notes on the deal: Class A-2 notes due December 2021 totaling either $420 million or $530 million; a Class A-3 notes tranche sized at either $350 million or $440 million, due October 2022; and an $89.62 million or $109.96 million Class A-4 notes tranche due 2025.

Neither Fitch nor S&P is rating the $160 million or $200 million Class A-1 money-market tranche.

The all-senior note tranches are supported by credit enhancement of 21.6% including initial overcollateralization of 14%, a 0.25% non-amortizing reserve account and expected excess spread of 4.64%.

The notes, which will be backed by an exchange note issued to the trust secured the series 2019-B reference pool of 27,326 leases (or 34,342 if upsized) and the related lease vehicles, according to presale reports.

Both agencies say the credit attributes in the transaction are in line with Mercedes-Benz typical prime-quality obligors: the weighted average FICO is 789 on the new-car leases with considerable seasoning (14 months) on contracts averaging 38 months.

Passenger-car volume among the pool of vehicles decreased slightly to 54.95% from the 57.68% level in MBALT 2019-A, the captive-finance lender’s first lease securitization of 2019 priced in January. SUV exposure increased to over 45% for both proposed 2019-B pools, compared to 42.32% in MBALT 2019-A

The pool is drawn from MBFS USA’s portfolio of retail lease contracts totaling 493,463, totaling $22.9 billion of as Sept. 30. Total delinquencies were just 0.62%, slight decrease from a year earlier. But repossessions are up to 0.42% from 0.39%. Net losses increased to 0.31% from 0.28%.

Mercedes-B3enz had a 6.58% residual loss on returned vehicles for the nine months ending Sept. 30. That figure, while an improvement from the same point in 2018, “reflects the impact of the increase in off-lease used vehicle supply in the overall industry and the return of older models that may have experienced a refresh since lease inception.”

S&P projects expected losses of 0.5% for the deal, while Fitch expects 0.8%.

In addition to its lease ABS activity, MBFS USA has also priced an auto-loan securitization this year, totaling $1.15 billion in notes.

The new deal is the 13th publicly placed lease-term securitization for the lender.

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