Volkswagen aims to raise up to $ 1.8 billion from ABS

In its first issue of 2021, the Volkswagen Auto Loan Enhanced Trust (VALET) 2021-1 prepares to issue premium installment loan-backed asset-backed securities (ABS) that VW Credit, Inc., the subsidiary financing from Volkswagen, originated.

Wells Fargo Securities is the primary underwriter in the transaction, for which Volkswagen Auto Lease is the trust depositor, according to Moody’s Investors Service.

A reserve fund, over-collateralization and excess margin enhance the credit of the Trust Notes, which will have four categories rated. Whether the original principal balance is $ 1.3 billion or $ 1.8 billion, the ratings, the initial 4.25% credit enhancement and the legal final maturity should be the same, according to Moody’s.

Moody’s also notes that the principal payments on the Notes will be made sequentially, therefore the non-decreasing improvement will increase as a percentage of the remaining assets as the pool amortizes.

The rating agency plans to assign P-1 ratings to the A-1 class and “Aaa” to the A-2, A-3 and A-4 ratings.

Moody’s expects the cumulative net loss (CNL) for the asset pool to be 0.9%, or 10 basis points (bps) lower than the VALET 2020-1.

Among the credit strengths of the transaction, Moody’s highlights VCI’s solid history in securitization backed by retail auto loans and leases. With 18 premier retail auto loan transactions, VCI is also a seasoned provider.

Another strength of the trust, the underlying collateral has strong credit, collectively. With 53,010 debtors, the collateral pool has a weighted average FICO (WA) score of 776, a WA annual percentage rate of 2.9%, and a WA remaining term of 54. The pool is almost evenly split among new cars. (58%) and used vehicles (42%).

By type of vehicle, trust is distributed between sport utility vehicles (SUVs), 66%, and cars (34%).

Moody’s noted some potential credit issues, however. The VALET platform carried out two transactions in 2018 and did not issue any tickets between 2015-2020. Such a lack of recent emissions makes the estimate of losses for VALET 2021-1 less certain.

Additionally, while the supply crunch and increasing demand have put upward pressure on used car prices, there is a risk that used car prices will fall. If a large number of leased vehicles expire and demand decreases, this pricing trend could reverse.


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