Tesla is tapping the securitization market for another $1 billion of bonds backed by auto leases.
This time, it’s getting an easier Aaa from Moody’s Investors Service for the senior tranche of notes to be issued, which benefits from fewer investor protections than the electric car manufacturer’s initial offering, completed in February.
Like the initial deal, the $919.71 million Tesla Auto Lease Trust 2018-B is backed by a mix of Tesla’s Model S (57%) and Model X (43%) battery electric vehicles; this concentration in only two models, along with a heavy geographic concentration, makes it riskier than other auto lease securitizations. And the weighted average seasoning is lower at seven months, versus 15 months for the prior deal, which introduces additional risk.
On the plus side, the credit quality of the lessors appears to be even higher than that of Tesla’s prior deal, with a weighted average FICO score of 791, up from 767 for the 2018-A transaction. However, the big change appears to be the fact that percentage of collateral attributed to the residual value, or what vehicles are expected to be worth when they come off-lease, is at the lower end of other auto lease ABS pools.
As a result, Tesla was able to secure an Aaa from Moody’s on the senior tranche of notes to be issued with just 27.5% credit enhancement; that’s down from 31.25% for the senior tranche of the prior deal. The lower credit enhancement comes at the expense of overcollateralization, which has fallen to 8.95% from 10.2%.
Effectively, Tesla is borrowing more heavily against the collateral for this deal than for the prior deal. In addition, the senior tranche represents a larger portion of the capital stack – 73.25% vs 69.5%. So a greater portion of the notes will pay the lowest interest rate.
Moody’s expectations for losses over the life of the deal are unchanged, at 0.5% of the initial collateral.
Total 30-day delinquencies on Tesla’s managed portfolio of leases were 0.73% at the end of September, down from 0.87% at the end of December (but up from 0.62% at the end of September 2017). However, net losses on outstanding leases have risen to 0.19% from 0.07% and the end of December and 0.05% from the end of September 2017.
