In a recent auto-lease investors briefing, Moody's Investors Service said that it is projecting auto-lease securitization volume to reach between $5 billion to $10 billion by the end of this year.
Though the current volume has been lower than the rating agency expected, it maintains that there's an abundance of product on the balance sheet of all the captive finance companies both domestically and internationally which are potentially ripe for securitization.
Sources added Mitsubishi and Volkswagen to the list of captive lease companies already expected to hit the market. Others include BMW Financial, GE Capital, GMAC and DaimlerChrysler.
According to the rating agency, the cost of setting up titling trusts, which are special-purpose corporations established to avoid running into legal issues in lease transactions, has caused these captive lease companies to hesitate to enter the auto lease ABS sector.
Aside from titling costs, it would also take time before auto lease players understand residual-value risks.
"Once the residual-value risk is better understood by market participants we would expect additional auto-lease securitizations to be completed," said Jay Eisbruck, vice president and senior credit officer at Moody's. "How long it will take for the risk to be understood is difficult to determine at this time."
However, in contrast to these captive lease companies, banks in the commercial mortgage-backed sector are probably less likely to access the auto lease securitization market in the near term, said Christina Cotton, managing director at Moody's.
In the banking arena, only Provident Bank has participated in the securitization market. The bank has done three securitizations to date. Other banks who are into the leasing business are First Chicago, Chase Manhattan and Norwest Bank.