Mercedes-Benz Financial Services next offering of bonds backed by auto leases with higher credit scores than those of its previous deals.
And like many recent auto loans and leases, securitizations, it also features higher exposure to sport utility vehicles, which remain popular even as sales of cars start to decline.
The $1.3 billion Mercedes-Benz Auto Lease Trust 2017-A will issue a $292 million money market tranche and three tranches of term notes with preliminary AAA ratings from Fitch Ratings and S&P Global Ratings: $600 million with a final maturity of August 2019, $302 million maturing in April 2020, and $120.88 maturing in January 2023. All four tranches benefit form 16.5% credit enhancement.
J.P.Morgan Securities is the lead underwriter.
The notes will be backed by payments on a pool of closed-end vehicle leases on new Mercedes-Benz vehicles manufactured by Daimler AG. All the leases were originated through Mercedes-Benz Financial Services USA, which will also act as servicer.
The pool has a weighted-average FICO score of 785, up from 784 in the sponsor’s September 2016 transaction, and the highest for any Mercedes deal ever, according to Fitch. The concentration of the pool with FICO scores of 800 or greater has also increased to 46.1%, also the highest level to date.
Vehicle model and segment diversity is also improved, compared with recent transactions, according to Fitch: Cars account for 62% and SUVs comprise the remaining 38%. By comparison, the historical range for SUVs is 28%–37%. “This is viewed as a positive as residual performance for SUVs has been stronger than cars recently,” The presale report states.
Fitch’s base case net credit loss expectation for transaction is 0.80%.