Volkswagen Bank is attracting a lot of fanfare as it launches a new securitization program that will mark several firsts for the European market. Volkswagen, the largest auto financing company in Germany, will securitize 1.1 billion of auto loans through a German-domiciled special purpose vehicle, Driver One GmbH.

The deal, which began premarketing last week, will be the first to use the True Sale International (TSI) platform finalized in September by a committee of 13 banks.

David Schulz, the director of securitization for Volkswagen, said he hopes to kindle the German market by introducing TSI to investors - even though his company is not one of the 13 founding banks.

"We have been really pleased with the progress our TSI colleagues have made," Schulz said. "We thought we could do our share as well and give them a shot in the arm." The structure represents another first for its asset class, by splitting the triple-A notes into two tranches, a fast-pay money market Class A1 and a slower-pay Class A2.

There are three tranches in all. The senior tranches - rated triple-A ratings by Moody's Investors Service and Fitch Ratings - will be worth 503.8 million each. Class A1 comes with 0.8-year average life and 9.9% credit enhancement. Class A2 has a 2.6-year average life, with identical credit enhancement. The ratings on Class B are A1' from Moody's and A+' from Fitch. Those notes have a 2-year average life and 6.65% credit enhancement.

The deal is backed by 97,831 loans, 50% for new vehicles and 50% for used. About 81% of the borrowers are retail customers and the rest corporations.

ABN Amro is the arranger and lead manager for the deal, with a syndicate that includes BNP Paribas, Hypovereinsbank and Royal Bank of Scotland. Price guidance is due next week.

Schulz said an important step to launching the new securitization program

at the bank included establishing

a team called "ABS Operations." The team consists of four people who are responsible for investor customer service, transparency, data quality. "We think it's a competitive advantage because most of our European competitors don't have that," he added.

The company aims to foster improved transparency in the European market in general, with quality that approaches the U.S. standard. "We want to be on the forefront of transparency," Schulz said. "Investors expect that."

He added that Driver One will be an annual issuer, and if all goes well, Volkswagen will continue to use the TSI platform. He conceded that being the first TSI issuer is a risk, but said he is optimistic about the investor response. "It's a risk we feel comfortable with," Schulz said. "We've done a lot of research. There's been an enormous amount of due diligence from the legal community, the tax community and the rating agencies to make sure this all works."

He noted that Volkswagen's leasing unit was the first non-bank in Europe to do securitization, via its VCL program. So the company is not only at ease with the idea of being first, it welcomes the opportunity. "It's neat for us to be able to show our innovation," he said.

Schulz also said he hopes TSI will follow up the progress it made for banks by working to clear the legal and tax hurdles to securitization for leasing and finance companies. He said Volkswagen must continue to use foreign special purpose vehicles to perform a true sale for its VCL deals.

"Right now we cannot use this platform for our successful VCL program because the regulations for German banks have not been extended to leasing companies," Schulz said.

Some random issues also remain for banks. Schulz said the VCL program always listed in Frankfurt, but the Driver One, because it is a German issuer, listed in Luxembourg. That's because Volkswagen wanted to avoid the requirement for German issuers to print prospectuses in German. Ironically, since VCL uses a foreign special purpose vehicle, that requirement does not apply.

"We listed in Luxembourg instead of Frankfurt - which would have been the logical choice - because we didn't want to spend a couple hundred thousand euros to translate all the darn documents into German," Schulz said. "I think the Frankfurt stock exchange needs to think about that."

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