Volkswagen Auto Loan Enhanced Trust is preparing to sell at least $1.3 billion in asset-backed securities to investors, to be secured by prime quality auto retail contracts that finance cars, vans and utility vehicles.
The trust will issue notes through a capital structure of five tranches, plus an overcollateralization tranche. As part of the deal's initial hard credit enhancement, overcollateralization represents about 4.0% of the pool balance, according to analysts at Moody's Ratings.
Asset Securitization Report's deal database finds that the notes are expected to pay yields ranging from 4.6% on the A1 notes to 4.7% on the A4 notes.
Total initial hard credit enhancement represents 4.25% of the pool balance, including a reserve fund equaling 0.25% of the pool balance, the rating agency said. It said it expects a cumulative net loss (CNL) of 1.75%, which was 25 basis points higher than on the VALET 2023-2, which was the last deal from the program that it rated.
Some recent performance deterioration in Volkswagen's managed portfolio vintages and securitization pools helped account for the increase in expected CNL losses, Moody's said. VALET 2024-1 can be upsized to $1.5 billion, with the same capital structure as the initial principal note amount, Moody's said.
Volkswagen Credit has a strong record as a sponsor and servicer, after issuing 20 prime retail securitizations, the rating agency said.
Legal final maturity dates range from Nov. 20, 2025 on the A1 tranche to June 20, 2031 on the A4 notes, according to Moody's.
In one potential credit challenge, VALET 2024-1 includes a tranche, class A2-b that pays a coupon based on a floating rate index. The underlying assets pay a fixed rate, a jump in rates will erode excess spreads in the transaction.
At the $1.3 billion principal note balance, the pool will have 47,535 contracts, with a weighted average (WA) annual percentage rate of 4.68%, and a WA remaining term of 56 months, Moody's said.
A large majority of the pool, 80%, is composed of new vehicles.
Moody's assigns P1 to the A1 notes and Aaa to the notes in the rest of the tranches. ASR's deal database finds that S&P Global Ratings assigns A1+ to the A1 notes; and AAA to the A2A through A4 notes.
