VW launches first prime auto ABS deal in two years

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Volkswagen Credit is sponsoring its first auto-loan securitization in two years, according to presale report issued Thursday.

Volkswagen Auto Loan Enhanced Trust 2020-1 is a $1 billion transaction, with the potential to be upsized to $1.2 billion.

The new transaction is only just the third for VW Credit since the company’s global emissions scandal in 2015, as VW Credit becomes the seventh lender to offer asset-backed bonds since the Federal Reserve announced TALF eligibility for prime auto ABS notes to support stimulus efforts for the COVID-19 ravaged market.

The capital stack is limited to senior notes with preliminary triple-A ratings from Fitch Ratings and Moody’s Investors Service, but are supported with significantly greater credit enhancement in comparison to two Volkswagen AG-sponsored deals in 2018.

Interior of the Volkswagen Tiguan SUV

The senior notes are backed by 5.25% credit enhancement, up from 3.25% offered in VW’s two securitizations in 2018. Besides the collateral cushion of a larger underlying loan balance in the new deal, VW Credit is also boosting its reserve account to 1% - compared to 0.25% two years ago.

A noteworthy change to the collateral mix in both the $1 billion pool and the $1.2 billion pool, is the inclusion of more used vehicles (41.09%) and more Audi-branded luxury cars (46.2%) compared to prior VW pools. VW is also including a higher share of sport utility and crossover vehicles (53.25%), a reflection of higher sales of models like the Volkswagen Tiguan SUV.

The transaction, led by Barclays, contains loans to borrowers largely with higher credit scores, with a weighted average FICO of 771 with WA APRs of approximately 4.47%.

Both Fitch and Moody’s have higher expected losses projected for the deal, due to the economic stresses of the coronavirus outbreak. Fitch’s cumulative net loss proxy is 1.6%, while Moody’s expected cumulative net loss is 1.5% - up from 1% in VW’s prior deal also rated by Moody’s.

Presale reports note the pool has a small number of loans that currently have payment extensions as of April 30 (4.48% of the $1 billion pool and 4.37% of the $1.2 billion pool) that were requested by borrowers due to the COVID-19 outbreak.

In the $1 billion pool, VW Credit is offering $345 million in Class A-2 notes due December 2022, split between fixed- and floating-rate tranches; a $395 million Class A-3 tranche due November 2024; and an $80 million Class A-4 notes offering maturing in August 2026.

Those note values grow to $412 million, $471 million and $96.57 million in the upsized pool.

Also being offered are money-market trances of $180 million, or $215 million if upsized, with preliminary top short-term ratings of F1 from Fitch and P-1 from Moody’s.

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