Nissan Motor Acceptance Corp. is maintaining historically strong credit characteristics in a new $1.25 billion auto-lease securitization, but is coping with growing volatility in the residual values of off-lease vehicles.
Nissan Auto Lease Trust 2017-B is NMAC’s second lease transaction this year; it is backed primarily by three-year auto lease contracts for new Nissan and Infiniti vehicles through franchised dealers. The transaction pools 71,721 leases with an aggregate $1.5 billion outstanding balance on the underlying cars, SUVs and cross-overs.
Four classes of senior notes will be issued, including a $158 million Class A-1 money-market tranche with a preliminary F1+ rating from Fitch Ratings and A-1 by Moody’s Investors Service and four term tranches.
The $620 million Class A-2 series due 2019 will be divided between A-2A fixed-rate and A-2B floating-rate notes, with the final sizes to be determined (the floating-rate portion is capped at a maximum 40% of the tranche). A Class A-3 notes tranche is sized at $370 million maturing in 2020 and a Class A-4 tranche due 2021 at $102 million.
All of the senior term tranches carry early triple-A ratings from the agencies, and are supported by the same 17.5% credit enhancement level as recent transactions.
Lessees have an average FICO score of 752, slightly above those of recent deals.
Much of the other collateral characteristics also little hanged from previous deals. Most of the vehicles are Nissan-branded cars and SUVs (80.4% of the pool), and just over 51% are for SUV and cross-over leases. The Nissan Rogue model remains the popularly leased Nissan vehicle, with Rogue contracts making up 19% of the collateral.
Moody’s points out that Nissan’s model concentration is greater than those of lease securitizations by GM Financial, similar to Hyundai but lower than World Omni (Toyota leases), BMW and Mercedes-Benz.
Maturity concentration is a factor in lease securitizations due to the short duration of the contracts. Peak maturity periods can mean excessive vehicle returns that could impact residual values based on the contemporary market value of the vehicles. While no contracts expire in the first 12 months (with average seasoning of 10.3 months), 61.4% of leases expire after 24 months, lower than compared to Nissan’s recent securitizations of 63.5% for the 2017-A deal and 65.4% for 2016-B.
The maximum percentage of residuals due in any 12-month period of the transaction is no more than 63.7%, down from 75.9% in Nissan’s most recent lease securitization. However, according to Moody’s, 79% of lease expirations in just five quarterly periods during the life of the transaction, leaving it “somewhat concentrated” and exposing the transaction to short-term drops in used-car market prices.
Nissan has experienced falling residual value performance in recent quarters, with losses on NMAC returned-lease vehicles sold off in the second quarter this year coming in at 10.04% below the initial residual estimate (based on Automotive Leasing Guide figures).
Much of that volatility is concentrated with the luxury Infinity brand: the average loss of $1,362 per Nissan vehicle is down from $1,580 in the second quarter of 2017; for Infiniti cars and SUVs, the losses have jumped to $3,338 per vehicle vs. $2,316 last year.
“NMAC's Infiniti portfolio has exhibited higher residual value performance volatility than that of non-luxury foreign captive finance companies,” Moody’s report stated. “This underscores the relatively high exposure of luxury vehicles to the macroeconomy.”
Moody’s still assigns a low 0.5% cumulative net loss to the 2017-B pool – similar to other deals – due to NMAC’s practice of absorbing the costs of repossessing and remarketing returned vehicles as corporate expenses, not net losses to the pool. The delinquency rate on NMAC's $21.6 billion portfolio is 1.14%.
Fitch has assigned a credit-loss proxy of 0.9% to the deal, lower than recent lease securitizations by Hyundai Capital America and Ford Motor Co.
