The German subsidiary of Spanish lender Santander Consumer Finance is planning its first auto loan securitization of the year.

The €600 million (US$677 million) SC German Auto 2017-1 UG will issue €558 million of Class A senior notes with preliminary triple-A ratings from both Moody’s Investors Service and S&P Global. The notes carry a floating rate that will be 0.4% above Euribor. They benefit from 8% credit enhancement, consisting of 7% subordination of the €42 million of unrated Class B notes, which Santander will hold in order to comply with risk retention rules, and a 1% reserve fund.

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That is lower than the average credit enhancement for auto loan transactions from peer German originator’s according to Moody’s Investors Service. In its presale report, the rating agency said this was justified by the strong historical performance of Santander AG’s previous 16 true-loan securitizations in Germany – and its €15.2 billion managed portfolio containing 466,000 consumer contracts – loss estimates for the 2017-1 pool are only 2.4% by S&P and 2% by Moody’s.

The notes are backed by a static pool of €600 million in indirect loans originated by Santander Consumer Bank AG through 21,000 dealers across Germany in the past year (average seasoning of 10.4 months). The loans are primarily five-year contracts, 45.8% of them with amortizing features and 54.2% in a balloon structure.

Among the credit strengths, according to Moody's, the portfolio is highly granular with the 20 largest borrowers representing 0.23% of the pool. It is also geographically diverse.

Used cars comprise 60% of the pool; a small percentage of the collateral (1.7%) are loans for motorcycles. Santander did not disclose a breakdown of vehicle contracts by manufacturer brand for the latest deal, as it did with the previous deal, completed last year.

Banco Santander, Barclays Bank, and UniCred Bank are the joint lead managers.

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