Volkswagen Financial Services’ U.K. subsidiary is returning to market with another £621.1 million of bonds backed by a revolving pool of vehicle leases.
Driver UK Master S.A. Compartment 5 will be a British pound-sterling securitization of 33,495 contracts primarily involving personal-contract purchase (PCP) agreements that function similar to U.S. auto leases.
Two classes of rated notes, as-yet unsized, will be issued in the transaction: the Class A notes, which acount for 72.5% of the collateral pool, have preliminary triple A ratings from Moody’s Investors Service and Fitch Ratings. The Class B series notes will take up 8.5% the pool, and are rated Aa3 (Moody's) /AA- (Fitch). Both classes of notes will have floating rate coupons tied to pound-sterling Libor, with rates to be determined.
There will also be an unrated tranche of notes accounting for 11% of the collateral pool.
The notes will be backed by receivables from both hire purchase contract and personal contract purchase agreements with retail consumers, plus the resale value of the vehicles returned under the PCP arrangements. The PCP contracts have a final balloon payment and allow borrowers to return vehicles in lieu of the payment at the end of the contract. PCP contracts make up 92.9% of the receivables.
The contracts have average remaining terms of 3.6 years, after 3.2 months' seasoning. The pool’s weighted average life is 2.7 years.
The average outstanding balance of the individual contracts is £18,544, with a majority (48.32%) tied to Audi-branded models sold through Volkswagen Group vehicles in the U.K. The remainder of the pool are Volkswagen (32.12%) and Skoda (10.1%), and the remainder non-VW vehicles (which are capped at 10% of the pool).
About 35% of the vehicles in the portfolio have diesel engines; Moody’s does not have a breakdown of which vehicles meet the more stringent European Union emissions standards, but 66.8% of the portfolio consists of new vehicles that would qualify, “which reduces the likelihood of these diesel vehicles being affected by issues such as taxation or low emissions zones.”
Credit Agricole is the lead manager and arranger on the transaction.
Moody’s expects losses over the life of the deal to reach 1.45% of the original balance of the collateral.
