Volkswagen Finance China (VWFC), a wholly owned subsidiary of Volkswagen Financial Services AG, is planning its second static cash securitization of Chinese auto loan receivables. The RMB [1.89 billion] ($304.7 million) transaction, called Driver China two Trust, will be rated by Moody’s Investor Service.
CITIC Securities Co. and China Merchants Securities have joint leads on the transaction.
The deal offers three tranches of notes: RMB [1.66 billion] ($267.6 million) of class A notes are provisionally rated Aa3’; RMB [104 million] ($16.8 million) of class B notes rated Baa1’; and RMB [124.5 million] ($20.1 million) that are not rated by Moody’s. The class A and B notes benefit from 13.73% and 8.25% credit enhancement, respectively.
The notes are expected to mature April 26, 2017; final maturity is set for February 26, 2022.
The deal is backed by 31,432 auto loan contracts distributed through Volkswagen dealers in various provinces in China, with a weighted average seasoning of 9.61 months. New car loans make up 99.85% of the pool.
All loans in the pool have a minimum down-payment of 25%, but the weighted average down-payment rate of the pool stands at 42.7%.
In its June 10 presale report on the China deal, Moody’s said that the geographic diversification of the pool serves as a key strength. It notes that 43.5% of the loans are granted through deals in provinces of China ranked in the top 10 GDP per capita as of 2013.
Moody’s cites the strong Chinese economy and the experience of the originator additional driving factors towards the investment-grade rating, also noting that the originator is retaining the subordinated notes in the deal, therefore assuming the first losses that occur.
The rating agency cites the lack of a back-up servicing arrangement at closing as a key weakness of the deal. Due to the geographical spread of the 30,000 obligors, there are limited viable replacement servicers or collection agents in China that can cover the vast area in which the obligors are located.
The latest deal come 12 months after the launch of Driver China one.
