Bank Deutsches Kraftfahrzeuggewerbe (BDK), a subsidiary of Societe Generale, is marketing Red & Black Auto Germany 3, a 740 million ($843 million) German auto loan securitization.
On offer is a single tranche rated AAA’ by Standard & Poor’s. The notes have a weighted average life of 1.8 years and benefit from 8.5% credit enhancement.
BDK provides auto-loan financing to German private and commercial customers. Red & Black Auto Germany 3 will be the issuer’s third publicly rated transaction and the first transaction rated by S&P (the previous two deals were rated by Fitch Ratings). The issuer completed its previous deal, Red & Black Auto Germany 2, in September 2013.
The collateral pool comprises about 76,500 loans, totaling 800 million, according to the S&P presale. The average outstanding balance is approximately 10,500. All loans pay a fixed interest rate.
As a non-captive lender, BDK finances a variety of vehicle manufacturers. The three largest manufacturers, which include Hyundai, Ford and Opel, make up 69% of the of the pool's balance.
Nearly half of the loans in the pool (45.8%) have a balloon payment (a final payment that is significantly higher than previous installments) at the end of their term. S&P said this exposes the pool to increased default risk “if the market value of the car declines significantly. The balloon payment at maturity could result in a payment shock to the borrower compared with equally amortizing loans."