Volkswagen adds €750M to European auto-loan ABS pipeline

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Volkswagen Bank GmbH is making its second trip to the European securitization market this year.

The €750 million Driver Multi-Compartment S.A., Compartment Driver Fifteen transaction consists of two tranches of rated notes: €694.5 million tranche of Class A notes with a preliminary triple-A ratings from Moody’s Investors Service and S&P Global Ratings, and a €21.7 million tranche of Class B notes rated A1 (Moody's) and AA- (S&P). The Class A notes benefit from7.75% credit enhancement.

The Driver 15 deal, led through Lloyds Bank and Landesbank Baden, is a follow-up to VW Bank’s €900 million Driver 14 transaction in March — which was VW Bank’s first German auto-loan securitization since the 2015 emissions-cheating scandal that engulfed the company in global controversy.

The new deal is backed by 41,068 loans that VW Bank originated and services. The collateral is evenly split between new and used Volkswagen-branded vehicle models that include Volkswagen, Audi and Skoda. The loans have an average 3.5 years remaining on the original four-year contracts with an average outstanding balance of €18,412 — although the segment of loans with more than €30,000 owed on the vehicles exceeds 25% of the collateral.

A majority of the portfolio (88.93%) are balloon loans that repay the bulk of principal, more than 52%, on average, at the end of the contract.

The deal does not include a revolving period in which additional collateral can be added; none of the loans in the pool are delinquent.

Moody’s expects losses to reach 1.6% of the original principal balance over the life of the deal.

None of the vehicles in the Driver 15 pool are affected by the diesel emissions scandal. But Moody's cautions that Volkswagen has a systemic legacy issue of declining resale values for its used cars as sales plummet in the German diesel-engine vehicle market — and major cities such as Hamburg enact restrictions on the use of older diesel vehicles .

“The public and political debate about the future of diesel engines has heated up in recent months due to new proposals restricting diesel cars in various metropolitan areas in Europe,” the presale report states.

VW Bank (a regulated firm that carries investment-grade corporate and credit ratings from Moody’s) is the largest auto financing company in Europe, and an affiliate of the €186.9 billion asset Volkswagen Financial Services, the captive-finance division of Volkswagen AG that also covers VW Leasing GmbH and VW’s U.S. Canadian and Spanish financial firms.

Volkswagen’s new deal continues a strong 2018 push into securitization by VW Bank and its parent to further diversify its financing requirements. The finance company made its debut securitization in Italy in April, and in June returned to the U.S. asset-backed market for the first time in four years with a $1 billion bond offering backed by new- and used-car loans from VW Credit, a subsidiary of Volkswagen Group of America.

This year's return to the German auto-loan ABS market was a milestone for VW Bank, which since 2016 had only marketed lease-backed securitizations domestically and asset-backed deals of its originations in other European markets (France, U.K., and Spain) in the wake of the 2015 diesel-engine emissions cheating scandal that led to a recall of 11 million vehicles worldwide.

In the interim, VW Financial Services has relied on its Pan-European securitizations and its commercial paper program (such as a €5 billion multicurrency issuance in 2017) for funding before the eurobond market welcomed the company back late last year.

The company has issued €2.5 billion in investment-grade European bonds this year, as well as a first-time bond issuance into the Russian Federation for a deal valued at €70 million.

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