VW unveils deal to reopen Europe’s ABS market image

Volkswagen Financial Services AG announced plans on Monday to securitise auto leases in a benchmark-sized public deal that would reopen Europe’s asset-backed securities (ABS) market after a year-long freeze.

There have been no European ABS issues for a year since the bankruptcy of Lehman Brothers disrupted the markets on Sept. 15, 2008. VW’s finance arm was also the last in Europe to issue ABS on Sept. 12, 2008.

“Having been the last before the market closed, VW is keen to open it after the recent rally in spreads,” said a source familiar with the transaction.

JP Morgan and WestLB have been named to manage the forthcoming VCL 11 Auto Lease deal and plan a launch following a pan-European roadshow scheduled for the week of Sept. 21, according to the announcement.

“This is a classic ABS transaction,” said Markus Ernst, a structured credit analyst at UniCredit (HVB).

The VW deal is to be marketed publicly on a standalone basis, Ernst said, as opposed to recent sterling issues from Tesco and Land Securities, which had recourse to Tesco and the UK government as tenants. These were described as a type of intermediate step to a standard ABS transaction.

An auto deal would be a logical type of ABS to reopen the market because auto leases are likely to have short maturities and are a more standardised asset class than mortgages, with a generally sound performance, he added.

“The challenge in this deal will be identifying the natural buyer base,” said an ABS specialist with a big UK fund manager, adding that money market funds could be likely candidates.

Some ABS buyers such as structured investment vehicles (SIVs) have gone out of business, and others such as many money market funds have shunned the market after significant losses.