A Chinese unit majority owned by Nissan Motor Co. is prepping an auto loan securitization for CNY1.5 billion ($242 million).
While the collateral behind the deal is well cushioned against default — borrowers on average put down 65% of the vehicle's value — there is no back-up servicer.
The originator/servicer, Dongfeng Nissan Auto Finance, will only designate a back-up if a deal trigger has been tripped. But since those triggers involve the servicer either becoming insolvent or failing to perform its duties, Dongfeng Nissan might not be in the position to ensure a smooth transition.
The deal from Dongfeng Nissan Auto Finance is split into two tranches: CNY1.3 billion in senior notes and CNY176 million in subordinated notes, according to a pre-sale from Moody’s Investors Service. The agency has a preliminary Aa3’ rating on the senior tranche and is not rating the sub piece. All notes have legal final maturity Nov. 26, 2019.
The senior notes have a 11.73% cushion from the sub piece, which provides protection against losses. The deal is also expected to benefit from excess spread - the degree to which return on the collateral exceeds how much the notes pay out to investors.
The originator will retain the subordinated piece, a practice required by Chinese regulators, which stipulates at least a 5% retention for local asset-backeds.
The rating on the senior piece is at the “ceiling” that Moody’s has imposed for local currency liabilities from entities within China. The country ceiling is designed to factor in systemic risks associated with operating in China. Moody’s said an upgrade of the ceiling could lead to an upgrade of the deal, suggesting the ceiling was acting as a cap on the rating.
The pool behind the deal consists of 27,088 borrowers spread throughout a number of provinces, with 17.8% of them living in Guangdong, a province in southeast China that borders Hong Kong. The borrowers were randomly selected.
Some 86.3% of the vehicles financed in the deal are Nissan, 6.01% Venucia, 4.02% Zhengzhou Nissan, and 3.65% Infiniti.
The weighted average down payment on the underlying loans is 34.91%. They have a remaining term just shy of two years, at 23.31 months.
The originator’s book in general has a 1.25% default rate but the track record is relatively short, from January 2008 to November 2014. Also, as Moody’s pointed out, this was a period of rapid growth. A slowdown, then, hasn’t been reflected yet in historical performance data.
Dongfeng Nissan Auto Finance is 58% owned by Nissan Motor Co., and 42% by Dongfeng Motor Group.
Leading the deal is CITIC Securities Company Limited. Bank of Tokyo-Mitsubishi UFJ acted as a financial advisor.
If Dongfeng Nissan needs to find a back-up servicer, a good one might be hard to find, as Moody's pointed out: “There are limiated viable replacement servicers or collection agents in China capable of covering the geographic spread and sheer number of loans.”
The country, at any rate, has yet to see a servicing transfer.
Volkswagen issued the most recent auto loan securitization in China, a CNY743 million deal.