Volkswagen Financial Services U.K. is pooling £750 million ($1.14 billion) of U.K. auto loan receivables to back sterling denominated bonds issued from its U.K. Driver trust.
Standard & Poor’s is rating the deal, called Driver U.K. three. On offer are ‘AAA’ rated, class A notes with 24% credit enhancement and ‘A+’ rated, class B notes with 15.2% credit enhancement. The bonds have a legal final maturity of January 2024. At closing the Driver U.K. will also issue an unrated subordinate loan.
Credit Agricole and Lloyds Bank are the joint lead managers.
The transaction is structured with a six-month revolving period during which the sponsor can add additional loan receivables to the pool of collateral.
The average outstanding loan balance is £16,671. Each borrower has paid at least two installments and none of the loans are delinquent.
However the pool is exposed to the risk of borrower payment shock, since 89.8% of the loans have final balloon payments at maturity.
In its presale report, S&P said that the risk of payment shock at the end of the life of the loans is mitigated by the deal's initial credit enhancement. This is adequately sized to cover both the risk of back-loaded losses as wellas potential losses on larger contract exposures at the end of the transaction.
Volkswagen U.K. is a wholly owned subsidiary of Volkswagen Financial Services AG. It has over 15 years' origination and servicing experience. It is currently the Volkswagen group's second-largest retail financing subsidiary, after its German parent company.
