Mercedes-Benz is offering its first auto lease-backed securities of the year, according to Standard & Poor’s.
The deal, dubbed, Mercedes-Benz Auto Lease Trust 2016-A, is the sponsor’s ninth ever.
Among the credit risks cited by S&P, the deal assigns a high aggregate residual value to vehicles ultimately backing the notes relative to the amount of debt to be issued. This puts investors at risk should the cars fetch less than expected when they come off lease or are repossessed.
The lease distribution by quarter of maturity is more concentrated in the 2016-A pool than in previous Mercedes transactions: the five quarters with the highest residual value maturities account for 65% of the transaction's securitization value, compared with a range of 58% to 64% for the 2013-A to 2015-B transactions. This puts investors at increased risk should resale prices fall over the short term.
However, relative to auto lease deals from other sponsors, the MBALT 2016-A pool has a lower share of residual value maturities in the top five quarters.
S&P’s cumulative net credit loss expectation for the 2016-A asset pool is 0.50%.
The trust will issue a money market tranche provisionally rated ‘P-1’ and four term tranches rated ‘Aaa.’ All of the senior notes benefit from credit enhancement of 17.05%.
The deal has yet to be sized; S&P’s presale report indicates that the total amount issued could range from $1.56 billion to $2.32 billion.
MUFG Bank, Barclays and Lloyds Securities are the lead underwriters.