Just a week after chief executive Mahesh Aditya pledged Santander Consumer USA Holdings
Santander Retail Auto Lease Trust (SRT) 2020-A is a $1.065 billion offering of bonds, via Citigroup, backed by an exchange note referencing a $1.15 billion pool of leases that Santander underwrote primarily for new Chrysler, Fiat, Jeep, Dodge, Ram and Alfa Romeo vehicles leased through FCA dealerships.
The pool of 36,612 leases assigned from Santander Consumer’s $17.5 billion managed vehicle-lease portfolio consist mostly of 38-month average contracts for sport utility (33.7% of the securitization value), crossover (28.6%) and truck models (26.8%) sporting the FCA brands. All of the leases remain serviced by Santander Consumer.
According to presale reports, the lease deal – Santander’s sixth ABS of Chrysler Capital leases since 2017 – has a higher proportion of leases with original terms longer than 36 months (44.5%) than prior SRT deals. The deal has a particularly high quarterly maturity mark in the second quarter of 2023 when 22% of the leases are set to expire, according to Moody’s Investors Service.
Maturity concentrations can expose a transaction to additional risk of having a high percentage of vehicles returned with lower-than-expected resale values if used-car market prices are down at that time.
Santander Consumer will market three tranches of Class A term notes with staggered maturities and preliminary triple-A ratings. A Class A-2 tranche due January 2023 is sized at $348 million; a Class A-3 tranche with a July 2023 final maturity totals $285 million, and a Class A-4 tranche due March 2024 is $106.92 million.
All three, plus a $176 million money-market tranche with top short-term ratings of F1 by Fitch and P-1 by Moody’s, benefit from 20.85% credit enhancement.
Neither agency published expected interest rates on the bonds.
Part of that enhancement is the subordination support of Class B ($43.27 million) Class C ($46.14 million) and Class D ($60.56 million) tranches that will have higher expected coupons but also a priority loss position against the senior notes.
Santander has served as a preferred lender for Fiat Chrysler since 2013, which means limited long-term data used by ratings agencies to project expected losses for the transaction (Moody’s has a 1% cumulative net loss expectation, and Fitch will use a forward-looking base case credit-loss proxy of 1.5% to judge the deal’s ongoing performance).
Santander’s 10-year contract with Fiat Chrysler runs through 2023. The long-term viability of the relationship was called into question in May 2018 when FCA floated the idea of forming its own captive-finance arm. The plan was later shelved, and Santander made a one-time $60 million payment in July 2019 to update the Chrysler Capital agreement.
Chrysler Capital for a primary portion of the $2.1 billion in new-auto leases that Santander Consumer USA underwrote in 2019.
