Santander Consumer (UK) plans to securitize a mix of U.K. auto loan receivables including fixed-sum loans and personal contract purchase (PCP) agreements.
PCP agreements are similar to car lease financing in the US. Borrowers place a deposit on a new car and finance the balance at a low monthly rate; at the end of the contract, they can either buy the car outright for an agreed lump sum (the final balloon payment), or return vehicle to the lender.
The deal will offer sterling tranches as well as a U.S. dollar tranche; the latter will be marketed to U.S. investors. The size of the deal, dubbed Motor 2014 -1 PLC, will be determined based on investor interest.
Moody’s Investors Service expects to rate the sterling-denominated tranches Aaa’ and A1’. The dollar-denominated tranche is also expected to be rated Aaa’, according to the preliminary report on the deal.
Terms of PCP agreements range from 18 and 48 months; longer terms translate into lower monthly payments and alsohave lower final balloon payments. Moody’s noted in its report that this final balloon payment gives rise to residual value risk in the transaction.
“Unlike in previous transactions under this program rated by Moody's, these final balloon payments will be securitized in Motor 2014-1 plc,” the presale report stated.
The transaction is the fourth public securitization transaction Santander Consumer has sponsored in U.K. The originator will also act as the servicer of the portfolio during the life of the transaction.