The U.K.’s MotoNovo Finance is sponsoring its eighth securitization of loans financing primarily used cars originated and serviced by the London-based affiliate of South Africa’s FirstRand Group.

Two classes of rated notes were issued in the €543.8 million transaction. A €507.5 million tranche of Class A notes due 2025 with 6.7% credit enhancement and an AAA rating from S&P Global Ratings pay 80 basis points above British-pound-denominated Libor. A €21.5 million tranche of BBB-rated Class B notes pay Libor plus 14 basis points.

There are also two unrated subordinate tranches: an €11 million Class C tranche and the €3.78 million Class D tranche. The Class D notes are to fund the initial cash reserve account of 0.7% of the asset pool.

The second-highest concentration within MotoNovo's new ABS consists of recent-vintage Vauxhall models.
The second-highest concentration within MotoNovo's new ABS consists of recent-vintage Vauxhall models. Bloomberg

The total principal balance from 63,297 loans in the pool is an initial €540 million, with 75% originated as hire purchase (HP) agreements and nearly 20% of lease-type personal contract purchase (PCP) agreements. Nearly 94% were for used vehicles.

There is an 18-month period in which more contracts with commercial and private borrowers, acquired from excess proceeds from receivables payments can be added to the trust.

The average loan has a balance of €8,531, with an original loan-to-value ratio of 90% and a term of 52.6 months. The loans have a weighted average seasoning of 5.1 months. S&P's report did not detail borrower characteristics, although the weighted average APR on the contracts of 11.2% is higher than that of standard prime auto-loan/lease ABS transactions.

The PCP loans repay the bulk of principal in a final balloon installment. This resulting slow rate of amortization increases the risk to investors that, in the event of a borrower default, it will not be possible to recover all of the principal because the vehicle is worth less than expected. The transaction’s pool can include up to 20% of PCP loans, compared to a 15% cap in FirstRand’s previous transaction that was through its Turbo Finance 7 PLC transaction that closed in November 2016.

Under U.K. law, owners in HP and PCP agreements who have paid back more than 50% of the total amount due on a vehicle can return a vehicle and discharge their remaining obligations – potentially exposing MotoNoVo to losses if vehicles have negative equity. S&P rates the risk of cumulative gross losses on voluntary terminations at 1.5%.

The mix of autos is concentrated on Ford models (14.8%), Vauxhall (11.9%), Audi (9.2%), BMW (9.1%) and Mercedes-Benz (7.4%). About 13.9% of the exposure is from Volkswagen diesel-engine vehicles. The S&P report did not detail the amount exposed to diesel models that were subject to the 2015 emissions scandal, but older diesel-engine vehicles are subject to potential restrictions and additional usage costs (including congestion charges) within London city limits.

The loan collateral includes a 13.3% share of light-commercial vehicles, and 3% for motorcycle loans. About 5% are corporate loans.

The deal’s performance triggers that would require early amortization payments are when delinquent loans surpass 2.5% of the pool, or if the cumulative net loss exceeds 3%.

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