Mercedes-Benz Financial Services USA is preparing its first captive-finance loan receivables securitization of the year, in a $1.24 billion transaction that could be upsized to $1.5 billion.
The Mercedes-Benz Auto Receivables Trust 2016-1 is to be split into five tranches of Class A notes, including a short-term money-market slice of A-1 bonds, according to a free-writing prospectus filing with the Securities and Exchange Commission.
The notes are expected to garner ‘AAA’ ratings from both Standard & Poor’s and Fitch Ratings.
BNP Paribas, Citigroup and Mizuho Securities are joint bookrunners on the deal.
The A-1 asset-backed notes due 2017 total $292 million (or $350 million, if Mercedes chooses to boost the size of the transaction to $1.497 billion, according to the filing). Those notes will have a preliminary A-1 structured finance rating from S&P, and a comparable ‘F1’ rating from Fitch.
A $418 million tranche of Class A-2 notes are to be divided between fixed- and floating-rate notes that mature in 2019, with the floating rate notes not expected to exceed $209 million. The filing states $442 million in five-year notes are to be issued for the Class A-3 portion. A subordinate $96.23 million tranche of A-4 notes due 2022 round out the deal.
In the event of an upsizing, the tranche sizes would be $500 million for the Class A-2A/2B notes; $532 million of Class 3-A; and $115.97 million for Class 4-A.
The notes will be backed by a collateral pool of $1.33 billion of new and used prime auto loans issued to customers who bought Mercedes-Benz passenger cars, crossovers and sport utility as well as the Smart ForTwo microcar line sold through Mercedes dealerships (Smart is a division of Mercedes parent Daimler AG). Most of the collateral consists of used vehicles, through 34,780 loans with an aggregate $857.1 million in principal balances that make up 64.64% of the pool under an issuance scenario totaling $1.25 billion in notes.
The average APR for used vehicles in the pool is 2.91%, compared to 3.4% for new vehicles.
Credit enhancement consists of 2.5% in initial overcollateralization and a 0.25% reserve fund totaling either $3.2 million or $3.84 million.
The pool contains 49,529 loans with an average principal balance of $26,772, although the original average balances exceeded $38,000 due to an average seasoning of 15.4 months – a figure well beyond the average 10-month seasoning for loans included in MBART’s previous transaction in July 2015 (MBART 2015-1).
The weighted average FICO score of the borrowers is 768.
An upsized pooling would include 59,357 loans contained in the Mercedes-Benz Receivables Trust, and would not effectively alter any of the underlying collateral characteristics.
Delinquencies and net losses are up slightly in 2016 to 1.18% and 0.29%, respectively.