Volkswagen Finance S.A., E.F.C. is selling €750 million in bonds in its fourth public securitization of auto loans extended to borrowers purchasing VW Group vehicle models in Spain.

The transaction, Driver España Four, is backed by a €750 million discounted portion of the collateral pool of 110,274 loans with an aggregate outstanding balance of €1.25 billion, according to presale reports issued by Moody’s Investors Service and DBRS. 

The senior tranche of a €666 million Class A notes, which has total credit enhancement of 12.5%, carries a preliminary triple-A rating from DBRS. However Moody’s rated the tranche two notes lower, at ‘Aa2’. It has a correspondingly lower expectation for recoveries at 25%, compared with DBRS’ 40%.

A subordinate tranche of €19.5 million Class B notes is rated A by DBRS and A2 by Moody’s. The B notes will be paid simultaneously with the Class A notes once a target level of overcollateralization is reached – a structure that could reduce levels of senior-note enhancement, cautioned Moody’s.

Of note is the lingering fallout from Volkswagen’s 2015 diesel emissions scandal, in which the company’s installation of software designed to defeat U.S. emissions testing resulted in a worldwide recall of more than 11 million vehicles. Moody’s said it confirmed that 2.2% of the outstanding discounted pool is affected by autos that have not yet been fixed by their owners, and considered the potential for contract cancellations in that mix should those vehicles be irreparable or non-replaceable.

The loans in the collateral pool are all current and have a weighted average remaining term of 3.9 years on balances of €11,335. Over 91% of the loans are fully amortizing; the remainder have balloon payments (the balance of those payments are excluded from the securitized pool). The distribution of vehicle types includes 34.29% Seat models; 33.89% VW models; and 22.43% Audi models.

Lloyds Bank and Crédit Agricole are lead managers of the deal

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