Santander Consumer, already one of the most frequent issuers of auto-related asset-backeds, is expanding its range of offerings. On Wednesday, it launched an $872.11 offering of bonds backed by retail auto leases.
Unlike Santander’s existing retail auto loan platform, Santander Retail Auto Lease Trust 2017-A is backed by prime quality collateral. The leases were originated by its Chrysler Capital division, through dealers of Fiat Chrysler vehicles. The receivables consist of the discounted value of remaining monthly lease payments and base residual values of a pool of lease contracts.
Santander only started originating auto leases as Chrysler Capital in 2013 and this will be its first auto lease securitization. While the company has extensive performance data on its subprime auto loan ABS pools, the weighted average FICO, not to mention the retail product, differs materially from this pool. The leases have a weighted average FICO of 747, original term of 36 months, and eight months seasoning. The vehicles being leased are a mix of SUVs (34%), trucks (21%), cars (20%), crossover utility vehicles (20%), and vans (5%).
Moody’s Investors Service expects cumulative net losses to reach 1% over the life of the deal.
In addition to the Santander’s strength as a service and the credit quality of the collateral, Moody’s is encouraged by the fact that lease maturities are less concentrated than those of most of Santander’s peers. The five quarters with the highest residual value maturities account for 77% of the transaction's securitization value, compared to 90% for World Omni and 80% for BMW lease transactions. “A more dispersed concentration of quarterly lease maturities reduces the exposure of the transaction to an event driven drop in residual values,” the presale report states.
As with all lease securitizations, falling used car prices pose a risk. Lessors set lease payments based on what they expect to recover when a vehicle is turned in at the end of the lease and resold. Should the sale result in less than the expected residual value, there will be fewer proceeds available to repay noteholders. Likewise, failure to realize the residual value on a car that is repossessed could also result in a shortfall of funds.
Five tranches of senior notes will be issued in the transaction, a $100 million money market tranche and four term tranches with preliminary Aaa ratings and maturities ranging from March 2020 to January 2022. All benefit from 23.7% initial hard credit enhancement.
J.P. Morgan Securities is the lead underwriter.