Merchants Automotive Group's latest sponsored term securitization will raise $500 million to fund a portfolio of vehicle leases.
The master trust structure will issue the notes through five tranches of class A, B, C, D and E notes, all of which have a January 2039 legal final maturity, according to Moody's Rating.
Merchant's Fleet Funding, series 2025-1, is expected to close on December 16, the rating agency said. Proceeds will fund a loan to Merchants Automotive Group so that the entity can finance its beneficial ownership interest in the Fleet SUBI portfolio.
Leases are floating-rate, open- and closed-end leases collateralized by primarily new automobiles, vans, light- and heavy-duty trucks, equipment, forklifts and trailers.
Merchants' senior management team managed portfolio has a strong performance record, with exceptionally low delinquencies and losses, even during the 2007-2008 recession, Moody's said.
Another credit positive about the deal, MFF 2025-1, is that the underlying assets have limited residual value risk. Most of the leases in the pool are open-end, where the lessee bears the residual value risk in the event of a default. The transaction would only be exposed to residual value risk in the event of closed-end leases that might be added during the deal's 12-month revolving period.
Among the deal's drawbacks is the obligor's weak credit quality, Moodys said. Among the master trust's top 60 leases, only 53.66% were extended to lessees with a Moody's public rating or credit estimate. Those lessees with ratings and credit estimates had a weighted average (WA) rating of B1. Those without ratings, meanwhile, were assumed to be rated Caa1.
Also, unlike the MFF 2024-1 transaction, overcollateralization does not include an OC floor, Moody's said. This could lead to increased volatility in the credit quality of the notes, the rating agency said.
Also, because of the pool's master trust structure, new fleet vehicles could be added to the transaction as existing vehicles depreciate and mature, the rating agency said.
Moody's assigned ratings of Aaa, Aa1 and A1 to classes, A, B and C.
