Tesla is issuing a $1 billion auto ABS, backed by a pool of closed-end retail automobile leases originated by Tesla Finance (TFL), a wholly-owned North American subsidiary of Tesla.
Five notes are being issued, four of which are class A, with the remaining $84.3 million being class B. TFL is also the transaction's servicer and administrator, according to Moody's Investors Service.
Tesla Auto Lease Trust (TALT) 2023-A is the seventh auto lease ABS issuance from TFL
TALT 2023-A has a securitized portfolio value of $1.8 billion, considerably higher than TALT 2021-B's $1 billion, Fitch Ratings says. The average remaining lease securitization value is $39,786, with remaining term of 24 months and seasoning of 11 months, says Moody's.
The deal's lead underwriters are Wells Fargo Securities, Deutsche Bank Securities, Goldman Sachs, Morgan Stanley, and SG Americas Securities, according to Moody's. The trustee for the deal, which closes on July 27, is Bank of New York Mellon Trust Company.
Although TFL was launched in 2014 and has limited experience, Fitch Ratings views it as an adequate originator, underwriter and servicer, as evidenced by the historical performance of its managed portfolio and prior securitizations. 2023-A will mark the third TALT securitization with TFL acting as servicer, but the first without a backup servicer, Fitch says.
The pool is slightly more concentrated geographically than prior series, and has higher model concentration risk compared to other luxury lease platforms, Fitch says. The top three Tesla models represent 89% of the pool, down from 100% in 2021-B, with 45% of leases concentrated in California. TALT 2023-A has a sequential-pay structure, and initial hard credit enhancement is relatively consistent with prior transactions, the ratings agency says.
At closing, the class A and class B notes are expected to benefit from 24.50% and 17.50% of hard credit enhancement, respectively. Hard credit enhancement for the notes consists of a combination of overcollateralization, non-declining reserve account and subordination, except for the class B notes, which do not benefit from subordination. The notes may also benefit from excess spread, Moody's says.
An unusual feature is a titling trust structure that gives rise to superior liens on the vehicles from the Pension Benefit Guaranty Corp. In the event of its bankruptcy, the originator can look to the vehicles and leases to fund its pension obligations. However, Fitch believes this risk is mitigated, as Tesla does not have a material pension liability.
Moody's expected median cumulative net credit loss expectation for TALT 2023-A is 0.50% and the total loss at a Aaa stress on the collateral is 29.00% (including 4.00% credit loss and 25.00% residual value loss at a Aaa stress).
Fitch expects to assign F1+ to class A1, AAA to classes A2, A3 and A4, and AA to class B.
Moody's expects to assign Prime-1 to class A, Aaa to classes A2, A3 and A4, and Aa2 to class B.
