A pool of 26,532 leases on Tesla-manufactured cars will secure $900 million in asset-backed bonds, offered through the Tesla Auto Lease Trust, series 2024-B.
The Tesla Auto Lease Trust, 2024-B, will issue the debt through seven tranches of class A, B and C notes, according to analysts at Moody's Ratings. Most of the capital structure—five notes—is composed of five class A notes. While the coupon has yet to be determined on most of the notes, the tranche A2-B will be benchmarked to the Secured Overnight Financing Rate (SOFR).
All the class A notes have a total initial hard credit enhancement level of 24.5%, while the class B and C notes benefit from 18.0% and 13.5% in total credit enhancement, respectively. Initially, all the notes benefit from overcollateralization representing 13.0% of the original pool balance, according to Moody's. The notes also benefit from initial reserves totaling 0.50%, Moody's said.
The notes have final maturity dates ranging from Oct. 10, 2025 through Dec. 20, 2028.
A string of banks are on the deal as lead underwriters, including SG Americas Securities,
Moody's set its cumulative net credit loss for the TALT 2024-B collateral pool is 0.50%, and he residual value loss at a Aaa stress level is 27.0%, according to the rating agency.
Tesla's standing as manufacturer, with its investment grade rating, counts as a credit positive, according to the rating agency. A bankruptcy and the expected residual value loss are unlikely scenarios, according to analysts.
Another plus is that the underlying borrowers are of a high quality, with a FICO score of 764 on a weighted average (WA) basis. Although this WA FICO score is slightly lower than Tesla's previous lease transactions, their credit quality overall remains high. Also on a WA basis, they have 11 months of seasoning, Moody's said.
But in a couple of potential credit drawbacks, TALT 2024-B has a residual value setting of 51.3% of the manufacturer's price. It was less than 50% in all the 2023 lease securitizations. Further, the Model Y SUV and the Model 3 sedan compose around 86% of the pool's securitization value, while Model X SUV and Model S sedan account for the remaining 14% of the pool. Despite over-the-air software updates, they are exposed to technology risks that could reduce the resale value of older Tesla vehicles.
Moody's assigns P1 to the A1 tranche; Aaa to the A2 through A4 tranches; Aa2 to the class B notes; and A3 to the class C notes.
