After a quiet close to 2014, the securitization pipeline looks set to rev up again with a $1.6 billion auto lease deal from Mercedes-Benz Financial Services USA (MBFS).
Moody’s Investors Service was hired to rate the deal, Mercedes-Benz Auto Lease Trust (MBALT) 2015-A. On offer are $271 million worth of class A-1, P-1’ rated, money market notes. The issuer will offer $1.12 billion of Aaa’ rated securities over four tranches The notes all have credit enhancement at 16.65%.
Barclays, Citigroup and Credit Agricole are the lead underwriters on the deal.
The transaction is backed by a pool of 39,985 leases with a weighted average original term of 34 months and a weighted average remaining term of 24 months. The weighted average FICO of the loans is 782.
This is MBFS’ seventh term securitization backed by auto lease receivables.
Moody’s noted in the presale report that the pool features a relatively high concentration in more expensive vehicles. “Past residual loss experience from MBFS and other issuers indicate that, everything else being equal, more expensive vehicles tend to have higher residual value loss volatility,” the report states.
MBFS experienced its worst residual value loss during the “Great Recession” of 2008-2009, with residual loss reaching the range of 13-21%. Since 2011, however MBFS’s residual loss performance has improved significantly.
Moody’s attributes the gains in residual value during that period in large part to “historically high used vehicle prices.” However as used car prices began to fall in 2014, the issuer also saw its residual value loss creep up to 2.84% for the nine months ended September 30, 2014.
As a result Moody’s applied a higher residual value stress to determine credit enhancement on the senior notes.