Nissan and Hyundai each launched approximately $1 billion of bonds backed by auto leases Thursday, according to rating agency reports.
Nissan’s offering comes just weeks after the manufacturer’s North American division announced that approximately 3.5 million model year 2013 and later Nissan and Infiniti vehicles are subject to a recall to remedy a defect in the vehicle’s Occupant Classification System that could result in the passenger side airbag failing to deploy. The vehicles affected by the recall represent approximately 90% of the securitization pool.
That may be why a presale report published by Moody’s Investors Service lists two possible sizes for the deal. Nissan Auto Lease Trust 2016-A will either issue $900 million or $1.17 billion of notes. Either way, Moody’s expects to assign an ‘Aaa’ rating to the senior classes of notes, which benefit from 16.5% credit enhancement.
The rating agency said that, while the recall may depress vehicle resale values, historically, the impact has not been long lasting. “In addition, our additional stress on residual recoveries realized during 2008-2009 results in a ‘Aaa’ residual realization assumption of approximately 65% of the actual historical residual value realization,” the report states. “This stress accounts for both macroeconomic events and idiosyncratic manufacturer risks such as recalls.”
Moody’s cumulative net credit loss expectation for the 2016-A asset pool is 0.50%,
Among the deal’s strengths, according to Moody’s are the financial strength of the manufacturer, which “renders a bankruptcy scenario and the associated significant residual value loss a remote possibility,” and its experience as a servicer. Nissan has completed 23 previous lease transactions and more than 30 retail loan transactions.
The lessees in the pool have a weighted average FICO score of 753; the leases have weighted average original term of 37 months and remaining term of 26 months.
Hyundai is marketing $1.071 billion of auto lease backed securities via Hyundai Auto Lease Securitization Trust 2016-B. Standard & Poor’s has assigned preliminary ‘AAA’ ratings to the senior notes, which benefit from 23.3% credit enhancement.
Citigroup Global Markets, Credit Agricole Securities, and RBC Capital Markets are the initial purchasers.
This is Hyundai’s tenth auto lease transaction overall, and the second in 2016. It has also issued several prior auto loan transactions.
The lessees in this pool have a 743 weighted average FICO score.
The series 2016-B pool will securitize mainly 36-month leases (54%) and 37- to 48-month leases (44%) originated by HCA. The monthly lease payments and lease residual values will serve as the notes' collateral. The securitized pool will comprise 10 Hyundai (counting the Genesis sedan and Genesis coupe as separate models) and nine Kia models, with the highest model concentrations being the Hyundai Sonata (19%), Kia Optima (17%), and Kia Sorento (15%). The securitized pool will consist primarily of 2014 model vehicles (6%), 2015 model vehicles (55%), and 2016 model vehicles (39%).
The top five vehicles are the same in this transaction as in Hyundai’s previous transaction. However, the percentage of leases with an original term of 37-42 months increased, to 15.5% from 7.4%, while the percentage with an original term of 43-48 months decreased, to 28.6% from 35.9%.