The originator has already ventured into the Chinese auto ABS market once this year when it raised Rmb2.57bn ($405m) in June via Bavarian Sky China 2015-1 Retail Auto Mortgage Loan Securitization.
That trade, which had Citic Securities as lead underwriter and HSBC as financial adviser, came with a four-tranche structure.
The Rmb1.13bn A1 piece was a fixed rate instrument, whereas the Rmb1bn A2 and Rmb204m B tranches were floating rate notes. The remaining Rmb208m subordinated portion was retained on the originator’s books.
While it is normal to see fixed rate/floating rate A1 and A2 tranches in CLOs, BMW’s June trade was the first time the structure was being used for auto ABS in China.
The reason why the leads designed the trade to have a fixed rate note at the top was because they wanted to draw the attention of domestic money market funds. Those accounts are only able to put their money in fixed rate instruments that have maturities of 397 days.
The tactic worked well as the trade ended up multiple times oversubscribed. BMW ended up selling the A1, A2 and B portions at coupons of 3.5%, 3.7% and 4.3%, respectively, which was the tightest pricing ever recorded by a Chinese auto ABS.
Unsurprisingly, BMW is sticking to the same four-tranche model with its upcoming Bavarian Sky China 2015-2, selling one fixed rate portion and two floaters.
What is different, however, is the amount of capital BMW is looking to free up. The new deal has an expected size of Rmb3.5bn. The bigger size means the number of loans in the asset pool is also larger this time around. Bavarian Sky China 2015-2 spots 27,440 loans compared with just 11,667 loans in its June transaction.
There are other differences in the portfolios as well as the weighted average seasoning is longer for the new deal. It stands at 1.49 years compared to 0.81 years in the older trade.
BMW is looking to raise Rmb1.96bn from the A1, Rmb980m from the A2 and Rmb280m from the B portion. It will be retaining the Rmb280m subordinated portion. They have weighted average lives of 0.28 years, 0.85 years, 1.27 years and 1.46 years, respectively.
The A1 and A2 pieces are rated Aa3( sf ) by Moody’s and AAA/AAA by domestic agencies China Chengxin International and China Ratings. The B tranche is rated A2( sf ) internationally and AA/AA+ domestically.
Citic Securities is once again lead underwriter and HSBC is acting as financial adviser. HSBC, though, is having an extra role this time around and is also a joint lead underwriter.
Bookbuilding is scheduled for November 18.