Mercedes Benz Bank plans to issue 800 million in securities backed by German loan receivables for cars, vans, trucks, and buses.
Silver Arrow Compartment 5 will be Mercedes-Benz Bank's fourth German publicly-rated asset-backed securities (ABS) transaction. The issuer was last in the market in October 2013 with Silver Arrow S.A., Compartment 4.
Commerzbank is the lead arranger.
Standard & Poor's has assigned preliminary 'AAA ' ratings to the class A notes. At closing, the trust will also issue 8 million of unrated class B notes to fund the non-amortizing liquidity reserve. This liquidity reserve is available to pay interest shortfalls and ultimately credit losses.
S&P stated in the presale report that the pool is exposed to higher borrower default risk because more than half of the collateral (63%) is comprised of loan contracts with balloon payments. These loans have a large installment at maturity and do not feature a dealer buyback obligation. So, if an obligor defaults on the balloon payment, Silver Arrow, Compartment 5 incurs an additional loss equal to the difference between the balloon installment and the vehicle's sale proceeds.
The portfolio is highly granular and well-diversified across Germany. The weighted average original term of the loans is 46 months and the weighted average remaining term of the loans is 29 months. Approximately 65% of the pool is comprised of new car loans and 34% is comprised of used car loans.