Tesla Finance is preparing to sponsor a $1.2 billion securitization of its retail auto lease contracts, the second such transaction from the company of 2023.
The company's investment-grade rating, the pool's lower exposure to residual value risk, the lessees' high credit quality, and the pool's buildup of credit enhancement during amortization are all some of the transaction's key credit strengths, according to ratings analysts from Moody's Investors Service.
Known as TALT 2023-B, the deal will issue notes to investors through five classes, all of which—except the class Bs—have total initial hard credit enhancement of 22.75%. The class B notes benefit from 15.75% in total initial hard credit enhancement, Moody's said. The rating agency also noted that the notes have legal final maturities that range from September 2024 on the A1 notes to August 2027 on the class B notes.
Analysts at Fitch Ratings point out that the transaction's credit enhancement levels are lower than what was seen on the 2023-A pool. It provides sufficient loss coverage over Fitch's base case loss proxy, and is still strong, and is still high compared with peer transactions. It is even markedly higher than the 19.15% in credit enhancement seen on the GMALT 2023-3 deal, according to a comparison that Fitch has between the two.
Another highlight of the deal is that the lease maturity distributions are more even, and less back loaded compared with prior transactions prior to 2023. The peak six-month residual value maturity is 32.8% of the total base residual value, up from 29.7% in the 2023-A.
Citigroup Global Markets is a lead underwriter on the deal, in a group that includes Credit Agricole Securities, HSBC Securities, Santander US Capital Markets and TD Securities, according to Moody's.
Moody's assigns ratings of 'P-1' to the A-1 notes; 'Aaa' to the A-2 through A-4 notes; and 'Aa2' to the class B notes. Fitch expects to assign similar ratings, with 'F-1+' to the A-1 notes; 'AAA' on the A-2 through A-4 notes; and 'AA' on the class B notes.
