LIMES - German equipment lease securitisation warmly received by investors

by Eamonn McMahon

The strong, mid-summer sun is shining bright for European equipment leasing with Socgen arranging the securitisation of a €750M equipment lease portfolio originated by Deutsche Leasing. The success of this public ABS is crucial for the equipment leasing sector where lessors have been growing their book at an average 6% p.a. in recent years with almost exclusive dependence on private funding mechanism.

This securitisation is, for all intensive purposes, a vanilla funding structure in line with regulatory guidance and STS best practice. The transaction has been verified by STS Verification International GMBH with 'true sale' status.

In an environment where the short end of the German yield curve is pricing between -50 and -80 bps, this deal is delivering some relief to treasury departments and institutional investors.

A short, amortising 1.46y WAL €671M AAA floater is being offered at Euribor + 50bp. The tranche is expected to be snapped up with large money managers and German banks eager to diversify away from real estate backed securities.

The class A comes with 10.5% credit enhancement, composed of the £78.8M principal subordination in the form of a retained fixed rate Class B, 3.5% excess spread and a non-amortising liquidity reserve.

The issuer is highly regarded. Deutsche Leasing Group is the market leader in Germany and is deeply embedded across the capital intensive manufacturing and construction industries. It forms a key part of Sparkassen Gruppe (The German Savings group) and benefits from an existing strong funding network.

The underlying portfolio is static with almost exactly 2/3 in the form Hire Purchase (lease with almost certain transfer of ownership at maturity via a peppercorn call option) and 1/3 leases (combination of 'Full-payout' and non-full payout). The deal rests on a strong, 'hard' assets such as construction equipment, commercial vehicles and transport equipment. The portfolio will be free of any defaults or arrears while offering a solid 17 months of seasoning. There is a good level of granularity with receivables on some 19,000 leases in the portfolio.

While not a small securitisation for what is a relatively niche collateral type and despite tight pricing, we expect the A tranche to be many times covered by orders given the crystal clean portfolio, anticipated support from German banks and summer drought of short dated AAA product.