BMW’s First Loan Issuance in 2 Years Provides Portfolio Insights
BMW Financial Services issued its first North American securitization deal in two years, and the parameters of the transaction reflect the rising loan term environment seen across the industry.
BMW’s 2018-A transaction backed by $1.4 billion in auto loans has the highest average loan term — 63 months — of any of its issuances dating back to 2006, according to the pre-sale report from Moody’s Investor Services. Loan terms of 61 to 72 days make up 43% of the pool, compared with 40% in the lender’s previous issuance.
Likewise, Mercedes-Benz Financial Service’s first issuance of the year backed by $1.2 billion worth of lease contacts also experienced increased term lengths, according to S&P Global Rating’s pre-sale report. Mercedes lease contracts with an original term of 36 months or greater increased to 19.5% of the pool, up from 14.7% in its last issuance.
Credit quality across the industry continues to be a concern as well and BMW has taken steps to mitigate that risk by raising its average Fico score to 778 — the highest ever among its previous issuances on record. The Fico score also the highest average Fico among comparable transactions from the captive’s peers such as Ally Financial Inc., Honda Financial Services, Hyundai Capital America, and Nissan Motor Acceptance Corp., according to Moody’s. However, BMW’s percentage of new vehicles — 60% — is the lowest among those peers.
“The recent trend of declining used-vehicle prices could expose the transaction to a higher net loss, due to lower recovery rates on defaulted receivables,” Moody’s noted in the report.
While BMW Financial has managed to keep short-term delinquencies flat, long-term delinquencies and charge-offs for the nine months ending in September 2017 are on the rise, according to the report. Loans 90 days or more past due grew to 0.38% of the captive’s loan portfolio, up from 0.33% during the same period the year prior. Meanwhile, net losses are up 4 basis points to 0.8% of the portfolio.
