Volkswagen’s U.S. captive finance arm, Volkswagen Credit Inc., is reentering the prime ABS space with a $1 billion issuance thanks to stronger collateral and credit enhancements, according to presale reports from S&P Global Ratings and Fitch Ratings.
Volkswagen Auto Loan Enhanced Trust (VALET) 2018-1’s issuance is VW Credit’s first auto loan securitization since 2014. The pool is secured by $1.1 billion of loans from the lender’s $8.3 billion managed portfolio.
“The series 2018-1 collateral pool exhibits better credit characteristics than the VALET 2014-2 pool,” S&P Global Ratings noted in its report.
The rating agencies both note better credit characteristics including VW Credit’s highest ever weighted average FICO in an issuance at 774 up from 762 in the 2014 issuance.
Additional collateral changes include an increase in weighted average seasoning to 11.8 months compared with 8.5 months; a decrease in the percentage of loans with original terms greater than 60 months to 46.7% compared with 57.5%; used vehicles increased to 28.2% compared with 27.7%; and Audi vehicles increased to 38.9% of the pool compared with 29.4%.
However, S&P Global Ratings expects cumulative net losses will range from 0.80% to 0.90% for series 2018-1 — higher than the lifetime losses incurred for series 2014-2 pool. S&P noted an “expectation of lower future recoveries, which may result in higher loss severity, all else being equal, and our forward-looking view of the macroeconomic and industry-specific conditions.”
All term notes have preliminary triple-A ratings from both rating agencies. The capital stack of VALET 2018-1 offering is made up of a $236 million class A-1 tranche; $400 million class A-2 tranche; $284 million in four-year in class A-3 notes; and an $80 million class A-4 tranche due 2024.