Auto ABS

Increased subordination and initial hard credit enhancement throughout the tranches, plus a slightly higher borrower profile help bolster the credit on the notes.

The initial principal note balance could be either $1.3 billion or $1.8 billion in notes the Volkswagen Auto Loan Enhanced Trust (VALET).

The deal’s sponsor has issued a small rated portion to investors and sold the remainder back to loan-originator.

Hertz Global Holdings Inc.’s $4.2 billion deal with Tesla Inc. is about more than just an order for 100,000 cars. It’s about vaulting electric vehicles into the mainstream.

The deal is fortified with collateralization, subordination and reserve accounts throughout the capital structure to get most of the notes to top ratings.

The supply chain crunch appears to be reflected in this deal, which has the smallest collateral pool of lease contracts since 2019, at 35,020.

Chapter 7 and Chapter 13 make up about 48% and 31% of the borrowers in the pool, respectively, while non-bankruptcy borrowers make up 21% of the pool.

Auto loan delinquencies and defaults had performed well thanks to federal intervention. Analysts expect them to return to historic levels, and then stabilize.

All of the underlying leases are financing new cars, Fitch noted, adding that leases under 36 months for the original term represented about 82.3% of the pool.

World Omni Financial Corp. is returning to the auto-loan ABS market with a jumbo transaction backed by collateral of higher credit quality than other similar deals.