Volkswagen Auto Lease Securitization Upsized

Volkswagen increased its auto lease VWALT 2014-A ABS by $500 million to $1.5 billion on the back of strong investor interest.

Moody's Investors Service and Standard & Poor’s assigned ratings of ‘Aaa’/’AAA’ respectively to the four class of class A notes sold to securitization investors.

The fixed-rate, class A-2A with a weighted average life of 1.35-years priced at 21 basis points over Eurodollar synthetic forward curve, according to a deal term sheet with Securities and Exchange Commission. The floating-rate, class A-2B notes with a weighted average life of 1.35-years priced at 21 basis points over one month Libor.

The triple-A, 2.27-years, class A-3 notes and the triple-A, 2.64-years, class A-4 notes priced at 27 basis points and 34 basis points over the interpolated swaps curve, respectively. Bank of America Merrill Lynch and Citi are lead managers on the deal.

The deal is the first auto lease securitization to print this year in a consumer ABS market that has been largely dominated by prime and subprime auto loan deals. According to S&P, around $15 billion of auto lease ABS volume is slated for 2014, up from last year’s $14 billion.

At a securitization industry conference last month, issuers in the auto loan securitization space said that investor interest is migrating from retail auto loan securitization to deals backed by leases and dealer inventory financing, making it cheaper to fund these other kinds of lending via securitization.

GM Financial is taking advantage of this spread compression to expanding its securitization platform beyond subprime auto loans to deals backed by fleet leases and dealer financing, according to Susan Sheffield, executive vice president, corporate finance.

Moody’s said in a report this week that securitized auto leases continue to perform better than original expectations, in terms of both credit and market residual value. Strong lessee credit profiles and a persistently strong used vehicle market mean that credit losses on lease payments will remain low this year.

However, declining used vehicle prices as well as a higher setting of securitized residual values in recent transactions will turn recent residual value gains into marginal losses, the ratings agency warned in the report.

"Used vehicle prices are going to continue to decline, albeit marginally; we're projecting an increase in new vehicle sales in 2014 to over 16 million new units from 15.6 million in 2013," said Aron Bergman, a Moody's assistant vice president and author of the report.