Auto ABS

Yields on the notes are expected to range between 6.36% on the AA- and Aa2 notes--as rated by KBRA and Moody's Ratings, respectively–to 10.08% on the BB notes, as rated by KBRA.

The pool luxury vehicle loans, which represent 5.4% of the pool, an increase from 4.0% from the level seen in VEROS 2023-1. The luxury vehicles had an average balance of $227,457, compared with $17,681 for all the loans in the pool.

In sessions on Tuesday, panelists said although inflation is sticky, long-term inflation expectations are very well anchored and he consumer picture is not as dire as previously thought, allowing certain risk markets to embrace a soft landing.

The class A-2 notes may consist of a fixed-rate A-2-A and a floating-rate A-2-B. After issuance, up to 75% of the class A-2 notes could be allocated to the class A-2-B.

Citing auto sales as a potential leading indicator, observers say the labor market's health might be overstated, while auto ABS assets start to underperform.

The current transaction will sell the most in securitized bonds since the 2022-1 series came to market with $850 million in notes.

Pricing guidance suggests the A1+ and F1+ notes are expected to yield 5.5% over the three-month interpolated yield curve, pricing at par. Yields are expected to vary from 5.49% to 5.42% on the AAA notes over three-month, interpolated yield curve.

As of Dec. 31, 2023, according to Moody's, the portfolio's delinquency rate was higher than the rating agency had observed in previous MBFS-sponsored transactions dating back to 2019, but it was still extremely low, at 1.46%.

All four of the class A tranches benefit from total initial hard credit enhancement of 13.80%, while the B and C classes of notes are covered by 10.6% and 6.0% in initial hard credit enhancement.

Both pools have exposures to large dealers, so losses could be more pronounced if one dealer goes bankrupt, while both series have revolving periods, when noteholders will not receive any principal.