Tesla Auto raises $900 million in ABS on electric vehicle leasing

A pool of 26,532 leases on Tesla-made cars will secure $900 million in asset-backed bonds, offered through the Tesla Auto Lease Trust, Series 2024-B.

The Tesla Auto Lease Trust, 2024-B, will issue the debt through seven tranches of Class A, B and C ratings, according to analysts at Moody’s Ratings. The majority of the capital structure – five notes – is made up of five Class A notes. While the coupon has yet to be determined for most of the securities, the A2-B tranche will be indexed to the Secured Overnight Financing Rate (SOFR ).

All Class A notes have an initial total hard credit enhancement level of 24.5%, while Class B and C notes receive 18.0% and 13.5% total credit enhancement, respectively. Initially, all notes are overcollateralized to 13.0% of the initial pool balance, according to Moody’s. The bonds also benefit from initial reserves totaling 0.50%, Moody’s said.

The Notes have final maturity dates ranging from October 10, 2025 to December 20, 2028.

A number of banks are participating in the deal as lead underwriters, including SG Americas Securities, Santander American Capital Markets, Citigroup Global Markets, HSBC Securities and Wells Fargo Securities.

Moody’s has set its cumulative net credit loss for the TALT 2024-B collateral pool at 0.50%, and the residual value loss at an Aaa stress level is 27.0%, according to the rating agency.

Tesla’s position as a manufacturer, with its investment-grade rating, counts as positive credit, according to the rating agency. According to analysts, bankruptcy and the expected loss of residual value are unlikely scenarios.

Another advantage is that the underlying borrowers are high quality, with a FICO score of 764 on a weighted average (WA) basis. Although this WA FICO score is slightly lower than Tesla’s previous lease transactions, their credit quality remains high overall. Also on a WA basis, they have 11 months of seasoning, Moody’s said.

But among some potential credit drawbacks, TALT 2024-B has a residual value of 51.3% of the manufacturer’s price. It was less than 50% across all 2023 lease securitizations. Additionally, the Model Y SUV and Model 3 sedan account for approximately 86% of the pool’s securitization value, while the Model S represents the remaining 14% of the pool. Despite over-the-air software updates, they are exposed to technological risks that could reduce the resale value of older Tesla vehicles.

Moody’s assigns P1 to tranche A1; Aaa at slices A2 to A4; Aa2 to grades B; and A3 to class C grades.