Presale:
Hyundai Auto Lease Securitization
Trust 2017-B
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This presale report is based on information as of May 18, 2017. The ratings shown are preliminary. This
report does not constitute a recommendation to buy, hold, or sell securities. Subsequent information may
result in the assignment of final ratings that differ from the preliminary ratings.
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amount (mil. Legal final
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Class
Preliminary
rating(i)
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A-1
A-1+ (sf)
Senior
Fixed
142.50 June 15,
2018
A-2A/A-2B
AAA (sf)
Senior
Fixed/floating(iii)
375.00 Dec. 16,
2019
A-3
AAA (sf)
Senior
Fixed
325.00 July 15,
2020
A-4
AAA (sf)
Senior
Fixed
85.07 March 15,
2021
B
AA+ (sf)
Subordinate
Fixed
50.30 Jan. 18,
2022
Type
Interest rate(ii)
,* ,$ -
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& & (i)The rating on each class of securities is preliminary and subject to change at any time. (ii)The
interest rate for each class will be determined on the pricing date. (iii)The class A-2 notes will be split
into fixed-rate class A-2-A notes and floating-rate class A-2-B notes. The sizes of classes A-2-A and
A-2-B will be determined at pricing; the maximum size of class A-2-B will be 50% of the aggregate
principal balance of the class A-2 notes. The class A-2-B coupon will be expressed as a spread tied to
one-month LIBOR.
Primary Credit Analyst:
Timothy J Moran, CFA, FRM, New York (1) 212-438-2440; [email protected]
Secondary Contact:
Ethan Choi, New York (1) 212-438-1043; [email protected]
See complete contact list on last page(s)
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Profile
Expected closing date
May 31, 2017.
Collateral
Prime auto lease receivables.
Origination trust
Hyundai Lease Titling Trust.
Issuer
Hyundai Auto Lease Securitization Trust 2017-B.
Sponsor, servicer, and administrator
Hyundai Capital America (A-/Stable/A-2).
Depositor
Hyundai HK Lease LLC.
Indenture trustee
Deutsche Bank Trust Co. Americas (A-/Negative/A-2).
Owner trustee
Wilmington Trust N.A. (A/Negative/A-1).
UTI, SUBI, Delaware, origination, and
administrative trustee
U.S. Bank Trust N.A.
Initial purchasers
J.P. Morgan Securities LLC, Barclays Capital Inc., HSBC Securities (USA) Inc., and Mizuho
Securities USA Inc.
UTI--Undivided trust interest. SUBI--Special unit of beneficial interest.
HALST Credit Enhancement Summary(i)
2017-B
2017-A
2016-C
2016-B
2016-A
2015-B
2015-A
Class A
AAA (sf)
AAA (sf)
AAA (sf)
AAA (sf)
AAA (sf)
AAA (sf)
AAA (sf)
Class B
AA+ (sf)
AA+ (sf)
AA+ (sf)
AA+ (sf)
AA+ (sf)
AA+ (sf)
AA+ (sf)
Class A
4.50
3.45
3.45
3.45
3.45
3.45
3.45
Class B
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Initial
12.50
13.00
13.00
13.00
13.00
13.00
13.00
Target
14.50
15.00
15.00
15.00
15.00
15.00
15.00
Step-down target after
class A-2 payout
13.50
13.50
13.50
14.00
N/A
N/A
N/A
Initial
0.50
0.50
0.50
0.50
0.50
0.50
0.50
Target
0.50
0.50
0.50
0.50
0.50
0.50
0.50
Rating
Subordination (%)
Overcollateralization (%)
Reserve account (%)
Total initial hard credit enhancement (%)
Class A
17.50
16.95
16.95
16.95
16.95
16.95
16.95
Class B
13.00
13.50
13.50
13.50
13.50
13.50
13.50
Total target hard credit enhancement (%)
Class A
19.50
18.95
18.95
18.95
18.95
18.95
18.95
Class B
15.00
15.50
15.50
15.50
15.50
15.50
15.50
Total step-down target hard credit enhancement after class A-2 payout (%)
Class A
18.50
17.45
17.45
17.95
N/A
N/A
N/A
Class B
14.00
14.00
14.00
14.50
N/A
N/A
N/A
Estimated excess spread per
year (%)
3.89
3.93
4.18
4.14
4.08
3.56
3.66
Discount rate (%)
7.00
6.90
6.75
6.75
7.25
6.00
6.00
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HALST Credit Enhancement Summary(i) (cont.)
Total securities issued ($)
Initial aggregate
securitization value ($)
2017-B
2017-A
2016-C
2016-B
2016-A
2015-B
2015-A
977,870,000
1,106,750,000
1,088,410,000
782,500,000
604,410,000
747,760,000
964,650,000
1,117,582,350
1,272,141,426
1,251,050,041
899,430,761
694,732,178
859,531,239
1,108,838,125
(i)All percentages are based on the initial aggregate securitization value. HALST--Hyundai Auto Lease Securitization Trust. N/A--Not applicable.
Rationale
The preliminary ratings assigned to Hyundai Auto Lease Securitization Trust 2017-B's (HALST 2017-B's) $977.87
million auto lease asset-backed notes series 2017-B reflect our view of:
• The availability of approximately 24.41% and 20.67% credit enhancement for the class A and B notes, respectively,
in the form of 4.50% subordination to the class A notes; 12.50% overcollateralization, which will build to a target of
14.50% of the initial securitization value and steps down to 13.50% nonamortizing after payment in full of the class
A-2 notes; a 0.50% nonamortizing reserve account; and the estimated excess spread (all percentages are measured
in terms of the pool's initial aggregate securitization value).
• The credit quality of the underlying collateral, which comprises prime auto lease receivables that have a 746
weighted average FICO score.
• The diversified mix of vehicle models in the pool.
• The relatively even distribution of the expected residuals' maturities.
• Automotive Lease Guide's (ALG's) forecast of each vehicle's lease-inception and current residual value.
• The timely interest and full principal payments by the notes' legal final maturity dates made under cash flow
scenarios that were stressed for credit and residual losses and are consistent with the assigned preliminary ratings.
• The transaction's payment and legal structures.
Our expected credit loss for the HALST 2017-B pool is in the upper range of 1.10%-1.30% of the securitization value,
which reflects the static pool loss projections for Hyundai Capital America's (HCA's) lease originations, the weakening
performance on the managed portfolio, the performance on the outstanding Hyundai lease transactions, collateral
comparisons with peers, and our forward-looking view of the economy, namely our expectation for lower used vehicle
values (see the Collateral Analysis section below for more information). Our 'AAA' stress scenario for credit loss is
6.25% of the securitization value, and our 'AA+' stress is 5.63%.
Our 'AAA' residual stress for the HALST 2017-B pool is 27.05% of the pool's aggregate undiscounted base residual
value. After applying this stress to the residual value portion of the pool (66.67%) and the nondefaulting leases
(87.50%), our 'AAA' residual stress constitutes 15.78% of the securitized value. Our 'AA+' residual stress for the HALST
2017-B pool is approximately 23.93% of the pool's aggregate undiscounted base residual value. After applying this
stress to the residual value portion of the pool and the nondefaulting leases (88.75%), our 'AA+' stress totals 13.81% of
the securitized value.
One of the main considerations in our analysis to derive our haircuts was a comparison of the HALST 2017-B base
residual value with the historical auction proceeds data, which ALG and the issuer provided. In addition, we
incorporated an analysis of the residual maturity schedule, vehicle model composition, and our views on the
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used-vehicle market.
Overall, our stressed 'AAA' credit and residual loss level totals 22.03% of the securitization value, while our stressed
'AA+' credit and residual loss level totals 19.43% of the securitization value. The credit enhancement outlined above
(and in the Cash Flow Modeling section below) provides more than adequate support for our assigned preliminary
ratings.
Changes From HALST 2017-A
The collateral changes from the prior transaction are as follows:
• The base residual as a percentage of securitization value increased to 66.67% from 65.82%.
• The weighted average FICO score is slightly higher at 746 versus 744.
• The percentage of leases with an original term of up to 24 months decreased to 2.07% from 3.08%, while the
percentage with an original term of 25-36 months decreased to 58.18% from 60.47%.
• The percentage with an original term of 37-42 months increased to 12.97% from 1.57%, while the percentage with
an original term of 43-48 months decreased to 26.78% from 34.82%.
• The top five vehicles remain the Sorento, Optima, Sonata, Elantra, and Santa Fe, and aggregate to approximately
63.09% of the pool as a percentage of securitization value which is higher than the series 2017-A pool's 61.84%.
• The percentage of cars decreased to 48.58% from 52.26%, while the percentage of SUVs/crossovers increased to
44.39% from 39.85%.
Transaction Overview
The series 2017-B transaction will be HCA's 13th auto lease transaction overall and the second in 2017. HCA has also
issued several prior auto loan transactions. The series 2017-B transaction is structured similarly to HCA's previous
transactions and to other lease securitizations with nonamortizing target credit enhancement. The pool's structure
incorporates an initial reserve amount equal to 0.50% of the initial securitization value and a 12.50%
overcollateralization amount, which builds to a target of 14.50% of the initial securitization value; once class A-2 is
paid in full, the target overcollateralization will step down to 13.50% of the initial securitization value. The series
2017-B pool's estimated excess spread is approximately 3.89% per year. The transaction uses a sequential-pay method
in which it can't release hard credit support until all the rated notes are paid in full, with the exception of the
100-basis-point overcollateralization release after class A-2 is paid in full. Excess spread, however, can be released as
long as the overcollateralization is at its target level.
The series 2017-B pool will securitize mainly 36-month leases (58.2%) and 48-month leases (26.8%) originated by
HCA. The monthly lease payments and lease residual values will serve as the notes' collateral. The securitized pool
will comprise 10 Hyundai (counting the Genesis sedan and Genesis coupe as separate models) and nine Kia models,
with the highest model concentrations being the Kia Sorento (15.9%), Hyundai Sonata (12.5%), and Kia Optima
(13.0%). The securitized pool will consist primarily of 2017 model vehicles (49%) and 2016 model vehicles (47%).
All of the leased vehicles included in the transaction will be titled in the origination trust's name, Hyundai Lease Titling
Trust, a Delaware statutory trust created in November 2005. The origination trust will issue a transaction special unit
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of beneficial interest (SUBI) certificate, which represents a beneficial interest in the origination trust that relates solely
to the specified auto lease receivables and related residual values that are dedicated to repaying the SUBI and,
ultimately, the rated notes. HALST 2017-B will own the rights, title, and interest to the SUBI certificate and will pledge
the SUBI certificate to the indenture trustee for the noteholders' benefit.
Legal Structure
On the closing date, HCA will sell, transfer, and assign the transaction's SUBI certificate to Hyundai HK Lease LLC (the
depositor) as a true sale. The depositor will then transfer and assign the SUBI certificate to HALST 2017-B (the issuing
entity), a newly formed Delaware statutory trust. The issuing entity will pledge the SUBI certificate to the indenture
trustee as security for the class A and B notes, each of which will represent an obligation of the issuing entity (see chart
1 for the transaction structure).
Pension Benefit Guaranty Corp. (PBGC) can file a lien against the assets of any member of Hyundai Motor Co.'s
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(Hyundai's) controlled group if minimum contribution payments to Hyundai's defined benefit pension plan are not paid
as required by law, or if Hyundai terminates an underfunded defined benefit pension plan. As a member of the
controlled group, HCA's assets could be subject to any PBGC lien (including those leases and vehicles designated to
the SUBI, which serve as the source of payments on the issued notes) if Hyundai's minimum contribution payments
are not made or if Hyundai terminates an underfunded defined benefit plan. In our opinion, the risk of a PBGC lien on
the leases and residuals assigned to the SUBI, which is pledged to the notes, is mitigated by the relatively small size of
the pension plan relative to the origination trust assets, as well as the company's historical ability to keep the plan
funded at the appropriate levels.
Like-Kind Exchange Program
HCA operates a like-kind exchange (LKE) program for its lease portfolio. The LKE program requires the proceeds from
vehicle sales to be assigned to, and deposited directly with, a qualified intermediary rather than being paid directly to
HCA as the servicer. The funds on deposit with the qualified intermediary will be available to purchase new vehicles
that will be titled in the originator trust's name. In return for allowing the residual proceeds to be deposited with the
qualified intermediary instead of the collection account, the servicer will deposit an equal amount into the collection
account within two business days of the residual proceeds' deposit with the qualified intermediary, HCA Exchange Inc.
We reviewed the constitutive documents of the qualified intermediary to determine whether it complies with our
special-purpose entity criteria in our analysis of the LKE program structure. Lastly, we reviewed provisions requiring
that the LKE program be terminated (in order to cause all subsequent residual proceeds to be deposited directly into
the collection account) upon the servicer's bankruptcy, if other servicer termination events occur, or if remedies upon
an indenture event of default are exercised.
Payment Structure
On each payment date, distributions will be made from available funds according to the payment priority shown in
table 1. Principal will be paid on the notes sequentially.
Table 1
Payment Waterfall
Priority
Payment
1
Advance reimbursements to the servicer.
2
Pro rata, the 1.00% servicing fee to the servicer and the $5,000 per collection period administration fee to the administrator.
3
Note interest, pro rata, to the class A noteholders.
4
The first priority principal distribution amount, paid sequentially (if the class A notes' balance, as of the preceding payment date,
is greater than the aggregate securitization value at the end of the related collection period) to the noteholders.
5
Note interest to the class B noteholders.
6
The second priority principal distribution amount, paid sequentially (if the class A and B notes' balance, as of the preceding
payment date, is greater than the aggregate securitization value at the end of the related collection period) to the noteholders.
7
To the reserve account, until it reaches the required amount.
8
The regular principal distribution amount, sequentially, to the noteholders(i).
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Table 1
Payment Waterfall (cont.)
Priority
Payment
9
Pro rata, to the indenture trustee, the origination trustee, or the owner trustee, any amounts due according to the transaction
documents.
10
Any excess amounts to the certificateholder.
(i)The regular principal distribution amount is designed to build the initial overcollateralization level to 14.50% of the initial securitization value
target. Once class A-2 is paid in full, the target will step down to 13.50%. All of the required payments on the notes will be due and payable on
each payment date (the 15th of each month beginning June 15, 2017).
On each payment date after note acceleration following an event of default, the indenture trustee will distribute the
available funds according to the payment priority shown in table 2.
Table 2
Event Of Default Payment Waterfall
Priority
Payment
1
Pro rata, to the indenture, origination, and owner trustees, for any accrued and unpaid fees, expenses, and indemnity payments
under the indenture, the origination trust agreement, or the trust agreement as applicable, provided, however, that aggregate
expenses payable to the indenture, origination, and owner trustees under this item are limited to $500,000 per year in the
aggregate.
2
Advance reimbursements to the servicer.
3
Pro rata, the 1.00% servicing fee to the servicer and the $5,000 per collection period administration fee to the administrator.
4
Note interest, pro rata, to the class A noteholders.
5
If an indenture default has occurred from a payment or bankruptcy default, then the following priority will apply: first, principal to
the class A-1 noteholders until paid in full; then principal, pro rata, to the class A-2, A-3, and A-4 noteholders until paid in full;
then interest to the class B noteholders; and then principal to the class B noteholders until paid in full.
6
If an indenture default has occurred from a breach of a representation, warranty, or covenant, then the following priority will
apply: first, interest to the class B noteholders; then principal to the class A-1 noteholders until paid in full; then principal, pro
rata, to the class A-2, A-3, and A-4 noteholders until paid in full; and then principal to the class B noteholders until paid in full.
7
To the indenture trustee, the origination trustee, or the owner trustee for any accrued and unpaid fees, expenses, and indemnity
payments.
8
Any excess amounts to the certificateholder.
Residual Value
The notes issued to finance the HALST 2017-B pool will be secured by leases with an aggregate securitization value of
$1,117,582,350. The leases' securitization value is the sum of the present value of each lease's remaining monthly
payments and the present value of the leased vehicle's base residual value (both discounted at 7.00%). Each leased
vehicle's base residual value will equal the least of the stated residual value set by HCA at the lease's inception, the
maximum residualized manufacturer's suggested retail price (MRM) residual value estimate established by the ALG at
the lease's inception, and the maximum ALG's refreshed MRM residual value estimate from its January-February 2017
edition. The MRM is an ALG adjustment that effectively caps the value of certain vehicle extras and optional
equipment.
HCA's stated residual value is the residual value of each vehicle assigned at the leases' inceptions--as stated in the
lease contract--that determines the monthly payments for the individual leases. The stated residual values are typically
set higher than the ALG residual value to reduce the lease payments that the lessees owe under the lease contracts (a
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process called lease subvention). Therefore, the definition of the securitization's base residual value provides a more
conservative estimate of each vehicle's future value and helps to mitigate noteholders' exposure to losses associated
with lease subvention. The undiscounted base residual is $745,124,106, or 66.67% of the HALST 2017-B pool's
securitization value.
Managed Portfolio
The managed portfolio has seen substantial growth since 2010, as a result of Hyundai's large market-share growth. As
of Dec. 31, 2016, Hyundai's total serviced lease portfolio comprised 786,397 contracts totaling $16.3 billion, up from
705,512 contracts totaling $14.4 billion as of Dec. 31, 2015. As of Dec. 31, 2016, total delinquencies increased to 1.51%
from 1.37% a year earlier. Net losses, as a percentage of the average dollar amount of lease contracts outstanding,
increased to 0.56% for the 12 months ended Dec. 31, 2016, from 0.36% a year earlier. On a growth-adjusted basis, net
losses for 2016 increased to 0.66% as a percentage of the average dollar amount of lease contracts outstanding, taking
into account the portfolio growth over the last year.
Table 3
Total Managed Portfolio
Year ended Dec. 31
2016
2015
2014
2013
2012
Lease contracts outstanding (mil. $)
16,323.65
14,364.43
12,063.99
9,923.38
7,115.20
Avg. dollar amount of leases outstanding (mil. $)
14,896.78
12,684.78
10,537.04
8,076.06
5,107.47
786,397
705,512
605,545
510,997
370,914
30-plus-day delinquencies (%)(i)
1.51
1.37
1.25
1.22
1.10
No. of repossessions (%)(ii)
0.62
0.56
0.55
0.36
0.33
Net losses (%)(iii)
0.56
0.36
0.33
0.27
0.16
No. of contracts outstanding
Vehicles returned to HCA (%)(iv)
34.00
29.00
21.00
14.00
12.00
Total gain (or loss) on ALG residuals on vehicles
returned to HCA(%)(v)
(7.25)
(7.66)
(1.03)
2.88
8.42
(i)As a percentage of the number of contracts outstanding. (ii)As a percentage of the average number of lease contracts outstanding. (iii)As a
percentage of the average dollar amount of leases outstanding. (iv)As a percentage of the number of vehicles scheduled to terminate. (v)As a
percentage of ALG's residual value of returned vehicles sold by HCA. HCA--Hyundai Capital America. ALG--Automotive Lease Guide.
As of Dec. 31, 2016, Hyundai's total serviced lease portfolio reported residual losses on returned vehicles that equaled
7.25% of the vehicles' ALG forecast residual values. We believe this is expected given that Hyundai reported residual
gains from 2010 to 2013 when used vehicle values generally increased. As market values improved, residual values
were reset generally higher, and this led to narrower residual gains and a small amount of residual losses beginning in
2014. Still, residual losses remain significantly lower than the cyclical high of 13.49% in 2008.
The car segment of the market has come under pressure in the past few months as gas prices remain significantly
lower than in 2014-2015. This has affected not only electric and hybrid vehicles but high-miles per gallon gas vehicles
as well. Conversely, the large truck and SUV segments have benefitted from low gas prices. Our criteria provide for
concentration limits on certain vehicle segments, among them compact and hybrid vehicles, full-size trucks, full-size
and mid-size SUVS, and minivans. Any excess above such concentration limits is haircut and added to the base
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residual stress as detailed under the Residual risk heading of the S&P Global Ratings' Expected Credit And Residual
Losses section below.
After three years of low return rates (in the low teens) from 2011 to 2013, return rates have started to inch up as
vehicle supply grows and consumers increasingly turn to larger, less fuel-efficient vehicles; return rates were 31% for
Dec. 31, 2016 compared with 29% for Dec. 31, 2015. Hyundai does not count a purchase of the underlying vehicle by
the grounding dealer as a return, which results in return rates that appear to be lower than those of peers.
The dollar amount of outstanding lease contracts in the Kia portfolio increased approximately 13% as of Dec. 31, 2016,
compared with the same period a year ago; the outstanding dollar amount of the Hyundai portfolio increased
approximately 15% over the same period.
The delinquency and net loss percentages for the Hyundai and Kia portions of the total lease portfolio are shown in
tables 4 and 5, respectively. The Hyundai portion demonstrated a decrease in delinquencies as of Dec. 31, 2016,
compared with Dec. 31, 2015, whereas the Kia portion demonstrated an increase over the same period. The same
pattern was observed in the number of repossessions. However, both Hyundai's and Kia's net losses increased for the
twelve months ended Dec. 31, 2016, over those for Dec. 31, 2015.
This HALST 2017-B's collateral pool has approximately a 50%/50% split between Hyundai and Kia vehicles.
Table 4
Hyundai Managed Portfolio
Year ended Dec. 31
2016
2015
2014
2013
2012
Lease contracts outstanding (mil. $)
8,814.66
7,695.45
6,734.96
6,061.41
4,658.73
Avg. dollar amount of leases outstanding (mil. $)
7,956.42
7,010.60
6,261.74
5,189.37
3,404.84
No. of contracts outstanding
426,085
382,188
340,058
312,519
238,752
30-plus-day delinquencies (%)(i)
1.14
1.27
1.22
1.18
1.11
No. of repossessions (%)(ii)
0.49
0.51
0.54
0.36
0.32
Net losses (%)(iii)
0.42
0.30
0.32
0.28
0.17
(i)As a percentage of the number of contracts outstanding. (ii)As a percentage of the average number of lease contracts outstanding. (iii)As a
percentage of the average dollar amount of leases outstanding.
Table 5
Kia Managed Portfolio
Year ended Dec. 31
2016
2015
2014
2013
2012
Lease contracts outstanding (mil. $)
7,508.99
6,668.98
5,329.04
3,861.97
2,456.47
Avg. dollar amount of leases outstanding (mil. $)
6,940.36
5,674.18
4,275.31
2,886.69
1,702.63
No. of contracts outstanding
360,312
323,324
265,487
198,478
132,162
30-plus-day delinquencies (%)(i)
1.96
1.49
1.29
1.28
1.09
No. of repossessions (%)(ii)
0.78
0.64
0.56
0.35
0.34
Net losses (%)(iii)
0.74
0.44
0.36
0.25
0.15
(i)As a percentage of the number of contracts outstanding. (ii)As a percentage of the average number of lease contracts outstanding. (iii)As a
percentage of the average dollar amount of leases outstanding.
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Across other issuers, we have observed significant portfolio growth as leasing has increased in popularity. Some have
experienced increased delinquencies, while others have seen decreased delinquencies, coupled generally with flat or
higher net losses.
Securitization/Surveillance Performance
Hyundai's paid-off securitizations experienced relatively low credit losses between 0.08% and 0.69% (see chart 2). We
maintain current ratings on six active Hyundai Auto Lease Securitization Trust transactions that closed between 2015
and 2017 (see table 6 and chart 3). Each transaction remains adequately enhanced at this time. We will continue to
monitor their performance to determine if the assigned ratings are sufficient and if any rating actions are deemed
appropriate.
Chart 2
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Table 6
Performance Data For Outstanding Hyundai Auto Lease Securitization Trust Transactions As Of The April
2017 Distribution Date
Revised
expected
lifetime credit
CNL as of
January
2016(%)
91-plus-day
delinquency
(%)
Cumulative net residual
losses/(gains) as a % of
aggregate initial
securitization value
Month
Pool
factor
(%)
Credit
CNL(%)
Initial
expected
lifetime
credit CNL
(%)
2015-A
25
42.49
0.61
1.00-1.20
N/A
0.17
0.05
2015-B
22
55.46
0.53
1.00-1.20
N/A
0.30
(0.13)
2016-A
15
74.30
0.40
1.00-1.20
N/A
0.24
(0.04)
2016-B
11
81.53
0.43
1.00-1.20
N/A
0.26
0.00
2016-C
8
86.97
0.31
1.00-1.20
N/A
0.27
0.00
2017-A
3
95.35
0.04
1.10-1.30
N/A
0.15
0.00
Transaction/series
CNL--Cumulative net loss. N/A--Not applicable.
Chart 3
In terms of residual performance, the paid-off securitizations experienced residual gains as a percentage of the initial
securitization value whereas the outstanding series are reporting relatively flat to slight residual losses on the
outstanding series pools (see chart 4).
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Chart 4
Collateral Analysis
The HALST 2017-B securitized pool comprises 56,419 prime auto lease receivables (see table 7). Hyundai and Kia
vehicles each account for approximately 50% of the pool's securitization value. The top five models (Sorento,
Optima,Sonata, Elantra, and Santa Fe) account for 63.1% of the securitization value, with the remaining 36.9% of the
pool comprising 14 other Hyundai or Kia models (counting the Genesis sedan and Genesis coupe as separate models).
The pool consists primarily of leases with 36-month original terms (58.2%) and 48-month original terms (26.8%). Cars
and crossover vehicles accounted for almost all of the pool. The pool's average FICO score is 746, and approximately
45% of the obligors in the securitized pool have FICO scores of 750 and higher. All percentages in table 7 are
expressed as a percentage of the securitization value.
Table 7
HALST Original Pool Characteristics
2017-B
No. of leases
2017-A
2016-C
2016-B
2016-A
2015-B
56,419
62,371
61,537
45,713
35,738
42,565
MSRP ($)
1,556,712,115
1,747,728,807
1,723,121,494
1,273,327,637
974,281,370
1,145,348,233
Original book value ($)(i)
1,449,743,923
1,639,640,394
1,611,579,437
1,181,812,645
923,593,690
1,093,193,411
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Table 7
HALST Original Pool Characteristics (cont.)
2017-B
2017-A
2016-C
2016-B
2016-A
2015-B
1,117,582,350
1,272,141,426
1,251,050,041
899,430,761
694,732,178
859,531,239
19,809
20,396
20,330
19,676
19,440
20,193
7.00
6.90
6.75
6.75
7.25
6.00
745,124,106
837,295,523
803,705,289
595,731,999
459,919,052
542,076,060
Avg. base residual value ($)
13,207
13,424
13,061
13,032
12,869
12,735
Base residual as a % of the
aggregate securitization
value
66.67
65.82
64.24
66.23
66.20
63.07
Base residual as a % of the
MSRP
47.87
47.91
46.64
46.79
47.21
47.33
Weighted avg. original term
(mos.)(ii)
39.4
39.9
40.4
39.7
40.1
40.5
Weighted avg. remaining
term (mos.)(ii)
30.4
30.9
31.4
30.0
31.0
32.6
Weighted avg. seasoning
(mos.)(ii)(iii)
9.0
9.0
9.0
9.6
9.1
7.9
Original aggregate
securitization value ($)
Avg. securitization value ($)
Securitization (discount)
rate (%)
Base residual value
(undiscounted) ($)
Original term (%)
24 months
2.07
3.14
2.16
2.25
3.94
0.97
25-30 months
--
--
--
0.04
0.33
0.59
31-36 months
58.18
60.47
55.42
53.63
52.43
49.10
37-42 months
12.97
1.57
5.42
15.45
7.37
21.05
43-48 months
26.78
34.82
36.99
28.63
35.94
28.28
49-54 months
--
--
--
--
--
--
--
--
--
--
--
--
Weighted avg. FICO
score(iv)
55-60 months
746
744
743
743
742
741
New vehicles (%)
100
100
100
100
100
100
Hyundai vehicles (%)
49.75
50.44
50.14
49.97
50.25
49.87
Kia vehicles (%)
50.25
49.56
49.86
50.03
49.75
50.13
Sorento=15.86
Sorento=15.26
Sonata=18.07
Sonata=18.98
Optima=18.23
Optima=19.25
Optima=12.97
Sonata=14.13
Optima=15.76
Optima=16.98
Sonata=18.10
Sonata=17.68
Sonata=12.48
Optima=13.46
Sorento=15.31
Sorento=14.64
Sorento=13.70
Sorento=11.85
Top five vehicles by model (%)
Elantra=11.40
Elantra=9.80
Elantra=9.42
Elantra=9.44
Elantra=11.46
Elantra=11.19
Santa Fe=10.38
Santa Fe=9.19
Santa Fe=8.15
Santa Fe=8.45
Santa Fe=8.32
Santa Fe=9.35
63.09
61.84
66.71
68.48
69.82
69.33
Car(v)
48.58
51.50
59.50
61.73
63.61
70.38
Crossover
44.39
40.51
33.75
31.86
29.30
28.18
Total
Vehicle type (%)
SUV
Minivan/wagon(vi)
--
--
--
--
--
--
7.04
7.99
6.75
6.41
7.09
1.44
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Table 7
HALST Original Pool Characteristics (cont.)
2017-B
2017-A
2016-C
2016-B
2016-A
2015-B
FL=15.56
CA=16.21
CA=16.17
CA=15.64
CA=15.92
FL=16.57
NY=13.87
FL=15.65
FL=15.94
FL=15.20
FL=15.27
CA=15.69
CA=13.73
NY=12.14
NY=11.68
NY=12.22
NY=11.33
NY=11.75
NJ=9.40
NJ=8.16
NJ=8.48
NJ=8.85
NJ=8.93
NJ=9.68
Top four state concentrations (%)
(i)The original book value is determined based on the leases' capitalized amounts minus the related leased vehicles' accumulated depreciation.
(ii)Average weighted by the securitization value. (iii)Seasoning refers to the number of months elapsed since the leases' origination. (iv)FICO
scores are calculated excluding accounts for which no FICO score is available (approximately 0.52% of the series 2017-B pool as a percentage of
the securitization value). (v)Car includes Accent, Azera, Cadenza, Elantra, Equus, Forte, Genesis, K900, Optima, Rio, Sonata, Veloster. (vi)This
includes the Soul (approximately 4.42% of the series 2017-B pool as a percentage of the securitization value), which is classified by ALG as a
compact multi-purpose vehicle. HALST--Hyundai Auto Lease Securitization Trust. MSRP--Manufacturer's suggested retail price.
Collateral Residual Timing
The leases in the HALST 2017-B pool are scheduled to mature as follows (all percentages are expressed as a
percentage of the pool's aggregate undiscounted base residual value):
• 9.34% in 2018;
• 58.45% in 2019; and
• 32.21% in 2020.
Leases will mature each month beginning in May 2018 (see chart 5). The highest base residual maturity level in any
one month is 6.61%, which occurs in March 2020. The second highest is 6.39% in June 2019. The highest percentage
of base residual maturities in any three-month period is 16.50%, which we expect to occur from April 2019 through
June 2019. We do not expect any of the residuals to mature within the first 11 months of closing. The majority of the
residuals mature two or three years after the closing date. If the used car market becomes distressed in 2017, 2018,
and 2019, there is increased risk that the realized residual values will be lower than the base residuals. This back-end
risk is mitigated by the transaction's sequential payment structure, in which the overcollateralization and reserve
account target amounts will not amortize until all of the notes are paid in full, with the exception of the 100-basis-point
overcollateralization release after class A-2 is paid in full. In the transaction's zero loss, zero prepay cash flow scenario,
approximately 81% of the residuals will have come due by the time the notes are paid in full.
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Chart 5
S&P Global Ratings' Expected Credit And Residual Losses
HALST 2017-B has two principal risk components: credit and residual risk.
Credit risk
The obligor's credit profile determines the credit risk. To derive the base-case credit loss for the series 2017-B
transaction, we projected the static pool losses on HCA's lease portfolio originations segmented by FICO score and
lease term. We then weighted the projections by the actual concentration of those various segments in the series
2017-B pool. We also considered the HALST 2017-B pool's collateral credit quality, Hyundai's overall managed pool
performance, the performance of outstanding HALST securitizations and our forward-looking view of the economy.
Based on this information, we expect the HALST 2017-B pool's cumulative net credit loss to range from 1.10%-1.30%
of the pool's securitization value.
Residual risk
We examined and assessed residual loss on the series 2017-B pool according to our auto lease criteria, "Revised
General Methodology and Assumptions for Rating U.S. ABS Auto Lease Securitizations," published Nov. 29, 2011.
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In our analysis of the series 2017-B pool's residual risk, we considered the following factors:
•
•
•
•
•
•
•
The historical stability of Hyundai's and Kia's used-vehicle values;
The consistency of the ALG's historical forecasts in relation to the actual historical used-vehicle values;
The basis for the differences between the actual values and the forecasts;
The ALG's basis for their current forecast;
Brand perception;
HCA's plans (if any) to discontinue or update the vehicle models in question in the near term; and
The economy.
Based on these factors, we did not apply any adjustment to the base residual value.
Base haircut
According to our auto lease criteria, we first applied initial 26.00% and 23.00% rating-specific haircuts to the series
2017-B pool's base residual value; this is commensurate with 'AAA' and 'AA+' rating scenarios, respectively.
Excess concentration haircut
In addition to the aforementioned base haircut, we applied a haircut to the amount of nondefaulted lease residuals
exceeding the concentration limits applicable to the benchmark pool (excess concentrations) as outlined in our auto
lease criteria. The haircut applied to excess concentrations commensurate with each rating scenario is shown in table
8.
Table 8
Additional Excess Concentration Haircut
Scenario (preliminary rating)
Haircut applied to the excess concentration as a % of undiscounted base residual value
AAA (sf)
AA+ (sf)
13.0
11.5
The excess 8.10% concentration results in additional 'AAA' and 'AA+' base residual value haircuts of 1.05% and 0.93%,
respectively, bringing the total base residual value haircuts applied to the series 2017-B pool to 27.05% and 23.93% at
the 'AAA' and 'AA+' levels, respectively (see table 9).
Table 9
Benchmark Pool Excess Concentrations
HALST 2017-B
Benchmark pool concentration
limit
Excess concentration
One-month maturity in excess of benchmark (% of undiscounted base residual)
March 2020
6.61
5.00
1.61
June 2019
6.39
5.00
1.39
November 2020
6.29
5.00
1.29
October 2020
6.12
5.00
1.12
December 2019
5.85
5.00
0.85
February 2020
5.83
5.00
0.83
March 2019
5.54
5.00
0.54
April 2019
5.22
5.00
0.22
5.25
5.00
0.25
16.09
20.00
--
October 2019
Individual model (Sorento) (%)
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Table 9
Benchmark Pool Excess Concentrations (cont.)
HALST 2017-B
Benchmark pool concentration
limit
Excess concentration
Full-size and mid-size SUVs, full-size pickups, and
vans (%)
29.06
30.00
--
Compact and hybrid cars (%)
18.55
30.00
--
2.66
10.00
--
--
--
8.10
New and discontinued models (%)
Total excess concentration (%)
HALST--Hyundai Auto Lease Securitization Trust.
We compared the excess concentrations for the 2017-B series pool with those of the prior 2015, 2016, and 2017
outstanding pools in table 10 below, from which it can be seen that the 2017-B pool has the highest excess
concentration.
Table 10
Benchmark Pool Excess Concentration Comparison
HALST
2017-B 2017-A 2016-C 2016-B 2016-A 2015-B 2015-A
One-month maturity in excess of benchmark (%)
8.10
4.56
7.90
2.85
2.53
0.04
0.09
Individual model (%)
--
--
--
--
--
--
--
Full-size and midsize SUVs, full-size pickups, and vans (%)
--
--
--
--
--
--
--
Compact and hybrid cars (%)
--
--
--
--
--
--
--
New and discontinued models (%)
Total excess concentration (%)
--
--
--
--
--
--
2.06
8.10
4.56
7.90
2.85
2.53
0.04
2.15
HALST--Hyundai Auto Lease Securitization Trust.
Speculative-grade manufacturer haircut
When determining the stress that applies to the adjusted base residual value, we use the auto manufacturer's
creditworthiness. Our auto lease criteria apply haircuts to the base residual value of the vehicles produced by
manufacturers with speculative-grade corporate credit ratings (i.e., 'BB+' or below).
Hyundai and Kia manufacture the leased vehicles backing the HALST 2017-B pool. On Jan. 29, 2015, we raised our
long-term corporate credit rating on each company to 'A-' from 'BBB+' because of their strong credit metrics and
improved financial risk profiles. We also raised our long-term corporate credit rating on HCA to 'A-' from 'BBB+'.
Based on the corporate credit ratings on Hyundai, Kia, and HCA, we did not apply a speculative-grade manufacturer
haircut to the series 2017-B transaction.
Low diversification haircut
For pools with low diversification, as described in our auto lease criteria, we apply a low diversification haircut in
addition to the aforementioned haircuts. Our auto lease criteria describe the six conditions for which, if met by the
securitized lease pool, we would apply this type of haircut. These conditions are:
• More than 20% of the residuals mature in any one month.
• More than 50% of the residuals mature in any three months.
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• The pool contains three or fewer individual models.
• The pool contains more than 75% of full-size and mid-size SUVs, full-size pickup trucks, and full-size vans
combined.
• The pool contains more than 75% of compact and hybrid cars combined.
• The pool contains more than 20% of new and discontinued models combined.
The HALST 2017-B pool does not meet any of these six conditions, so we did not apply the low diversification haircut.
Total stressed residual losses
After analyzing the HALST 2017-B lease pool, applying the relevant residual value haircuts, and assessing stressed
return rates of 100.00% and 97.50% at the 'AAA' and 'AA+' rating levels, respectively (representing the loss frequency
on nondefaulted leased vehicles of 87.50% and 88.75%, respectively), our stressed residual loss under each rating
scenario is shown in table 11.
Table 11
Stressed Residual Loss
Scenario (preliminary rating)
AAA (sf)
AA+ (sf)
26.00
23.00
1.05
0.93
Total residual haircut as a % of base residual value
27.05
23.93
Total residual haircut as a % of securitization value
15.78
13.81
Residual haircut as a % of undiscounted base residual
Additional excess concentration haircut (%)(i)
(i)The excess concentration haircuts are derived by multiplying the total excess concentration calculated in table 9 by each of the rating category
haircuts shown in table 8.
Cash Flow Modeling
We tested HALST 2017-B's proposed structure using cash flow scenarios to determine if the credit enhancement levels
were sufficient to pay timely interest and principal in full by the notes' legal final maturity dates under our 'AAA' and
'AA+' stress scenarios.
We modeled the transaction to simulate stress scenarios commensurate with the ratings to determine if the credit
enhancement levels were sufficient to pay timely interest and principal in full by the notes' legal final maturity dates.
We assumed a 100% turn-in rate on the nondefaulting leases (87.50%) at the 'AAA' rating level and a 97.50% turn-in
rate on the nondefaulting leases (88.75%) at the 'AA+' rating level, together with no prepayments. The cash flow
results demonstrate that the preliminary rated notes are enhanced to the degree necessary to withstand a level of
stressed credit and residual losses that is consistent with the assigned preliminary ratings. The class A notes can
withstand a cumulative net credit loss of 6.25% of the securitization value and residual losses equal to 15.78% of the
securitization value on 100% of the nondefaulting leases that reach their lease maturity. The class B notes can
withstand a cumulative net credit loss of 5.63% of the securitization value and residual losses equal to 13.81% of the
securitization value on 97.50% of the nondefaulting leases that reach their lease maturity (see table 12).
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Table 12
Cash Flow Assumptions And Results
Class
Scenario (rating)
Cumulative net loss percent (%)
Cumulative net loss timing (mos.)
Cumulative net loss (%)
Voluntary prepayments (%)
Recoveries (%)
Recovery lag (mos.)
A
B
AAA
AA+
6.25
5.63
12/24/36
12/24/36
40/80/100
40/80/100
0.00
0.00
50
50
4
4
27.05
23.93
Residual haircut (%)
Total residual haircut as a percentage of the undiscounted base residual value
Total residual haircut as a percentage of the securitization value
Vehicle return rate (%)
Residual realization lag (mos.)
S&P Global Ratings' stressed credit and residual loss as a percentage of the securitization value (%)
15.78
13.81
100.00
97.50
2
2
22.03
19.43
24.41
20.67
Result (%)
Credit enhancement in the transaction based on S&P Global Ratings' credit stress and break-even residual
stress as a percentage of the securitization value (%)
Sensitivity Analysis
In addition to running stressed cash flows to analyze the amount of credit and residual losses the transaction can
withstand, we ran a sensitivity analysis to determine how credit and residual losses that are in line with a moderate
('BBB') stress scenario could affect our ratings on the notes. According to our ratings stability criteria, we will not
assign a preliminary 'AAA (sf)' or 'AA+ (sf)' rating if we believe that the rating would decline more than one rating
category in the first year during a moderate stress scenario. We will also not assign a preliminary 'AAA (sf)' or 'AA+
(sf)' rating if we anticipate that the rating would decline by more than three rating categories in a three-year horizon
under moderate stress conditions.
In our view, under the 'BBB' moderate stress scenario, all else being equal, we expect our ratings on the class A and B
notes to remain within one rating category of the assigned preliminary ratings in the first year and remain within three
rating categories of the assigned preliminary ratings over a three-year horizon (see chart 6).
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Chart 6
Money Market Tranche Sizing
The proposed money market tranche (the class A-1 notes) has a 12-month legal final maturity date (June 15, 2018). To
test whether the money market tranche can be repaid by month 12, we ran cash flows using assumptions to delay the
principal collections during the 12-month period. In our cash flow run, we assumed zero defaults and a zero absolute
prepayment speed on all leases. We also stressed the recognition of the monthly lease payments and base residual
amounts by applying a lag of one and two months, respectively. Based on our cash flow runs, nine months of
collections would be sufficient to pay off the money market tranche.
Legal Final Maturity
To test the legal final maturity dates set for the longer-dated tranches (classes A-2 through A-4), we determined when
the respective notes would be fully amortized in a zero-loss, zero-prepayment scenario and then added six months to
the result. We also looked to see when these notes would pay off in our stressed cash flow scenarios. In our cash flows
for the longest-dated security (class B), we added seven months to the tenor of the last-maturing receivable in the pool
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to accommodate extensions and residual realization on the receivables. In all of our cash flow scenarios, we confirmed
that there is sufficient credit enhancement both to cover losses and to repay the related notes in full by their legal final
maturity dates.
HCA
HCA (A-/Stable/A-2) is an 80%-owned subsidiary of Hyundai Motor America, which, in turn, is a wholly owned
subsidiary of South Korea-based automaker Hyundai Motor Co. (A-/Stable/--). The remaining 20% is owned by Kia
Motors America Inc., an affiliate of HCA and a wholly owned subsidiary of Kia Motors Corp. (A-/Stable/--). HCA
offers both retail and lease products to its customers. HCA is a full-service auto finance company that provides
services to Hyundai dealers across the country and arranges financing for facilities refurbishment, real estate
purchases, construction, working capital requirements, and dealer inventory.
Related Criteria And Research
Related Criteria
• General Criteria: Methodology For Linking Long-Term And Short-Term Ratings, April 7, 2017
• Criteria - Structured Finance - General: Ratings Above The Sovereign - Structured Finance: Methodology And
Assumptions, Aug. 8, 2016
• Criteria - Structured Finance - General: Methodology: Criteria For Global Structured Finance Transactions Subject
To A Change In Payment Priorities Or Sale Of Collateral Upon A Nonmonetary EOD, March 2, 2015
• Criteria - Structured Finance - General: Criteria Methodology Applied To Fees, Expenses, And Indemnifications,
July 12, 2012
• General Criteria: Global Investment Criteria For Temporary Investments In Transaction Accounts, May 31, 2012
• Criteria - Structured Finance - RMBS: U.S. Interest Rate Assumptions Revised For May 2012 And Thereafter, April
30, 2012
• Criteria - Structured Finance - ABS: Revised General Methodology And Assumptions For Rating U.S. ABS Auto
Lease Securitizations, Nov. 29, 2011
• Criteria - Structured Finance - ABS: General Methodology And Assumptions For Rating U.S. Auto Loan
Securitizations, Jan. 11, 2011
• Criteria - Structured Finance - General: Standard & Poor's Revises Criteria Methodology For Servicer Risk
Assessment, May 28, 2009
• Legal Criteria: Legal Criteria For U.S. Structured Finance Transactions: Appendix III: Revised UCC Article 9
Criteria, Oct. 1, 2006
• Legal Criteria: Legal Criteria For U.S. Structured Finance Transactions: Criteria Related To Asset-Backed Securities,
Oct. 1, 2006
• Legal Criteria: Legal Criteria For U.S. Structured Finance Transactions: Securitizations By Code Transferors, Oct. 1,
2006
• Legal Criteria: Legal Criteria For U.S. Structured Finance Transactions: Select Issues Criteria, Oct. 1, 2006
• Legal Criteria: Legal Criteria For U.S. Structured Finance Transactions: Special-Purpose Entities, Oct. 1, 2006
• Criteria - Structured Finance - ABS: Assessing the Risk of Pension Plan Terminations on U.S. Auto Lease
Securitizations, Aug. 17, 2004
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Related Research
• Hyundai Motor, Kia Motors, And Hyundai Mobis Ratings Affirmed At 'A-'; Outlooks Stable, Jan. 23, 2017
• Global Structured Finance Scenario And Sensitivity Analysis 2016: The Effects Of The Top Five Macroeconomic
Factors, Dec. 16, 2016
• Hyundai Capital America Long-Term Rating Raised To 'A-' Following Upgrade Of Hyundai Motor Group; Outlook
Stable, Jan. 30, 2015
In addition to the criteria specific to this type of security (listed above), the following criteria articles, which are
generally applicable to all ratings, may have affected this rating action: "Post-Default Ratings Methodology: When
Does Standard & Poor's Raise A Rating From 'D' Or 'SD'?," March 23, 2015; "Global Framework For Assessing
Operational Risk In Structured Finance Transactions," Oct. 9, 2014; "Methodology: Timeliness of Payments: Grace
Periods, Guarantees, And Use of 'D' And 'SD' Ratings," Oct. 24, 2013; "Counterparty Risk Framework Methodology
And Assumptions," June 25, 2013; "Criteria For Assigning 'CCC+', 'CCC', 'CCC-', And 'CC' Ratings," Oct. 1, 2012;
"Methodology: Credit Stability Criteria," May 3, 2010; and "Use of CreditWatch And Outlooks," Sept. 14, 2009.
The analysts would like to thank Jie Liang, Angel Escobar, Joe Fang, and Jenna Cilento for their analytical
contribution to this presale report.
Analytical Team
Primary Credit Analyst:
Timothy J Moran, CFA, FRM, New York (1) 212-438-2440; [email protected]
Secondary Contact:
Ethan Choi, New York (1) 212-438-1043; [email protected]
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