Tesla's prime auto loan finance arm is preparing to securitize $783.3 million in revenue, giving the operator another boost in liquidity.
Deutsche Bank Securities will be the lead underwriter in this deal, the Tesla Electric Vehicle Trust, 2023-1, according to ratings analysts from Moody's Investors Service. The entire portfolio is comprised of new vehicles, Moody's said.
Tesla Finance has sold its revenue streams from retail auto loans into securitization trusts before, either through by including some of its leases as collateral in other auto ABS deals, such as the
The loans have strong borrower characteristics, such as a weighted average (WA) FICO score of 733, and WA seasoning of 10 months, according to Moody's. The rating agency was also heartened by Tesla's investment grade rating of 'Baa3', making a bankruptcy scenario and significant residual value losses a remote possibility.
Tesla Electric Vehicle Trust will repay investors sequentially, building enhancement in the notes as the pool amortizes. Aside from the repayment arrangement, Moody's notes that a non-declining reserve will grow as a percentage of the remaining assets as the pool amortizes, adding to the deal's positive credit aspects.
Moody's expects to assign ratings of 'P-1' on the A1 notes; 'Aaa' to the A2A through A4 notes; 'Aa3' to the class B notes.
The notes will also benefit from over-collateralization, subordination and excess spread, the rating agency said. Yield supplement over-collateralization also confer benefits to the notes, the rating agency said. Total initial hard credit enhancement is 7.25%, Moody's said.
While the deal has a number of structurally strong attributes, Moody's cautions that as a sponsor Tesla has a limited performance history, with vintage performance data that goes back only to 2021 when they started to originate loans. Also, all of the loans in the pool are BEVs of four models. Further concentrating the pool, the Model Y sport utility vehicle and Model 3 sedan comprise around 76% of the underlying pool balance. Further, new Tesla vehicles have been subject to multiple price reductions, resulting in some downward pressure on the price of used Tesla models.
