In its first issuance of 2021, the Volkswagen Auto Loan Enhanced Trust (VALET) 2021-1 is preparing to issue asset-backed securities (ABS) backed by prime-quality retail installment loans that VW Credit, Inc., the Volkswagen financing subsidiary, had originated.
Wells Fargo Securities is lead underwriter on the transaction, for which Volkswagen Auto Lease as the depositor into the trust, according to Moody’s Investors Service.
A reserve fund, overcollateralization and excess spread provide credit enhancement to the notes in the trust, which will have four rated classes. Regardless of whether the initial principal note balance is $1.3 billion or $1.8 billion, the ratings, initial hard credit enhancement of 4.25% and legal final maturity are expected to be the same, according to Moody’s.
Moody’s also notes that the note principal payments will be made sequentially, therefore non-declining enhancement will grow as a percentage of remaining assets as the pool amortizes.
The rating agency expects to assign P-1 ratings to the A-1 class and ‘Aaa’ to the A-2, A-3 and A-4 notes.
Moody’s expects the cumulative net loss (CNL) for the asset pool to be 0.9%, which is 10 basis points (bps) lower than the VALET 2020-1.
Among the deal’s credit strengths, Moody’s points to VCI’s strong history of securitizations secured by retail auto loans and leases. With 18 previous prime retail auto loan transactions, VCI is also an experienced servicer.
In another strength for the trust, the underlying collateral has strong credit, collectively. With 53,010 obligors, the collateral pool has a weighted average (WA) FICO score of 776, a WA annual percentage rate of 2.9%, and a WA remaining term of 54. The pool is almost evenly split between new cars (58%) and used vehicles (42%).
By vehicle type, the trust is divided between sport utility vehicles (SUVs), 66%, and cars (34%).
Moody’s did, however, note a couple of potential credit challenges. The VALET platform has had two transactions in 2018, and hadn’t issued any notes from 2015-2020. Such a lack of recent issuances makes estimating losses for VALET 2021-1 less certain.
Also, while the supply crunch and higher demand has put upward pressure on used car prices, there is a risk that used car prices could drop. If a large number of leased vehicles reach the end of their terms and demand subsides, that pricing trend could reverse.
