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Presale:
Hyundai Auto Lease Securitization Trust 2020-BSeptember 15,
2020
Preliminary Ratings
Class(i) Preliminary rating Type Interest rate(ii)Preliminary
amount
(mil. $)Legal finalmaturity
A-1 A-1+ (sf) Senior Fixed 142.00 Oct. 15, 2021
A-2 AAA (sf) Senior Fixed 380.00 Jan. 17, 2023
A-3 AAA (sf) Senior Fixed 380.00 Sept. 15, 2023
A-4 AAA (sf) Senior Fixed 74.39 June 17, 2024
B AA+ (sf) Subordinate Fixed 52.94 Oct. 15, 2024
Note: This presale report is based on information as of Sept.
15, 2020. The ratings shown are preliminary. Subsequent information
may result inthe assignment of final ratings that differ from the
preliminary ratings. Accordingly, the preliminary ratings should
not be construed asevidence of final ratings. This report does not
constitute a recommendation to buy, hold, or sell securities.
(i)All or a portion of one or moreclasses of notes may be initially
retained by the sponsor Hyundai Capital America Inc. or its
affiliate. (ii)The actual coupons of these trancheswill be
determined on the pricing date.
Profile
Expected closing date Sept. 23, 2020.
Collateral Prime auto lease receivables.
Origination trust Hyundai Lease Titling Trust.
Issuer Hyundai Auto Lease Securitization Trust 2020-B.
Sponsor, servicer, and administrator Hyundai Capital America
Inc. (BBB+/Negative/A-2).
Depositor Hyundai HK Lease LLC.
Indenture trustee U.S. Bank N.A. (AA-/Stable/A-1+).
Owner trustee Wilmington Trust N.A. (A/Negative/A-1).
UTI, SUBI, Delaware, origination, and administrative trustee
U.S. Bank Trust N.A.
Lead underwriter J.P. Morgan Securities LLC (A+/Stable/A-1).
UTI--Undivided trust interest. SUBI--Special unit of beneficial
interest.
Presale:
Hyundai Auto Lease Securitization Trust 2020-BSeptember 15,
2020
PRIMARY CREDIT ANALYST
Ethan Choi
New York
(1) 212-438-1043
[email protected]
SECONDARY CONTACT
Sanjay Narine, CFA
Toronto
+ 1 (416) 507 2548
[email protected]
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mailto: [email protected]:
[email protected]: [email protected]:
[email protected]
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Credit Enhancement Summary(i)
Hyundai Auto Lease Securitization Trust
2020-B 2020-A 2019-B 2019-A
Rating
Class A AAA (sf) AAA (sf) AAA (sf) AAA (sf)
Class B AA+ (sf) AA+ (sf) AA+ (sf) AA+ (sf)
Subordination (%)
Class A 4.50 4.50 4.50 4.50
Class B N/A N/A N/A N/A
Overcollateralization (%)
Initial 12.50 12.50 12.50 12.50
Target 13.50 13.50 13.50 13.50
Reserve account (%)
Initial 1.00 0.50 0.50 0.50
Target 1.00 0.50 0.50 0.50
Total initial hard credit enhancement (%)
Class A 18.00 17.50 17.50 17.50
Class B 13.50 13.00 13.00 13.00
Total target hard credit enhancement (%)
Class A 19.00 18.50 18.50 18.50
Class B 14.50 14.00 14.00 14.00
Estimated excess spread peryear (%)(ii)
4.02 3.70 3.63 3.50
Discount rate (%) 6.00 7.00 7.15 7.90
Total securities issued ($) 1,029,330,000 893,796,000
926,226,000 710,570,000
Initial aggregate securitizationvalue ($)
1,176,382,864 1,021,482,211 1,058,544,313 812,087,923
(i)All percentages are based on the initial aggregate
securitization value. (ii)Reflects estimated annual excess spread
at the preliminary ratingsand does not reflect final pricing.
N/A--Not applicable.
Rationale
The preliminary ratings assigned to Hyundai Auto Lease
Securitization Trust 2020-B's (HALST2020-B) auto lease asset-backed
notes series 2020-B reflect our view of:
- The availability of approximately 24.1% and 19.4% credit
enhancement for the class A and Bnotes, respectively, in the form
of 4.50% subordination for the class A notes;
12.50%overcollateralization, which will build to a target of 13.50%
of the initial securitization value; a1.00% nonamortizing reserve
account; and excess spread (all percentages are measured interms of
the pool's initial aggregate securitization value).
- The credit quality of the underlying collateral, which
comprises prime auto lease receivablesthat have a weighted average
FICO score of 761.
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Presale: Hyundai Auto Lease Securitization Trust 2020-B
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- Our expectation that under a moderate ('BBB') stress scenario
(2.0x our expected loss level), allelse being equal, our
preliminary ratings on the class A and B notes are consistent with
thecredit stability limits specified by section A.4 of the Appendix
contained in S&P Global RatingsDefinitions (see "S&P Global
Ratings Definitions," published Aug. 7, 2020).
- The diversified mix of vehicle models in the pool.
- The relatively even distribution of the expected residuals'
maturities.
- Automotive Lease Guide's (ALG) forecast of each vehicle's
lease-inception and current residualvalue.
- The timely interest and full principal payments by the notes'
legal final maturity dates madeunder cash flow scenarios that were
stressed for credit and residual losses and are consistentwith the
assigned preliminary ratings.
- The transaction's payment and legal structures.
Our expected credit loss for the HALST 2020-B pool is 0.90% of
the securitization value, whichreflects the performance of the
outstanding HALST transactions, the static pool loss projectionsfor
Hyundai Capital America Inc.'s (HCA) lease originations, the
performance on the managedportfolio, collateral comparisons with
peers, and our forward-looking view of the economy. Our'AAA' stress
scenario for credit loss is 4.50% of the securitization value, and
our 'AA+' stress is4.05%.
Our 'AAA' and 'AA+' residual stress for the HALST 2020-B pool is
27.29% and 24.14%, respectively,of the pool's aggregate
undiscounted base residual value. After applying this stress to the
residualvalue portion of the pool (65.55%) and the nondefaulting
leases (91.00% under the 'AAA' stressand 91.90% under the 'AA+'
stress), our 'AAA' and 'AA+' residual stress constitutes 16.28%
and14.18%, respectively, of the pool's aggregate securitization
value.
One of the main considerations in our analysis to derive our
haircuts was a comparison of theHALST 2020-B base residual value
with the historical auction proceeds data, which the
issuerprovided. In addition, we incorporated an analysis of the
residual maturity schedule, vehicle modelcomposition, and our views
on the used-vehicle market.
Our total stressed losses (credit and residual) are
approximately 20.78% and 18.23% for the 'AAA'and 'AA+' rated notes,
respectively, as a percentage of the initial aggregate
securitization value. Inour view, the credit enhancement outlined
above and in the Cash Flow Modeling section belowprovide more than
adequate support for our assigned preliminary ratings.
S&P Global Ratings acknowledges a high degree of uncertainty
about the rate of spread and peakof the coronavirus outbreak. Some
government authorities estimate the pandemic will peakaround
midyear, and we are using this assumption in assessing the economic
and creditimplications. In our view, the measures adopted to
contain COVID-19 have pushed the globaleconomy into recession (see
our macroeconomic and credit updates
here:www.spglobal.com/ratings). As the situation evolves, we will
update our assumptions andestimates accordingly.
Changes from HALST 2020-A
The structural and credit enhancement changes from HALST 2020-A
include the following:
- The reserve account increased to 1.00% from 0.50%.
- The discount rate decreased to 6.00% from 7.00%.
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Presale: Hyundai Auto Lease Securitization Trust 2020-B
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The collateral changes from the prior transaction are as
follows:
- The base residual as a percentage of securitization value
increased to 65.55% from 63.13%.
- The percentage of leases with an original term of 37-42 months
increased to 8.12% from1.38%, while the percentage of leases with
an original term of 43-48 months decreased to19.23% from
26.93%.
- The top five vehicles are the Tucson, Sportage, Santa Fe,
Sonata, and Sorento; and theyaggregate to approximately 53.67% of
the pool as a percentage of securitization value, which ishigher
than the series 2020-A pool's 51.34%.
- Genesis-branded vehicles are included for the fifth time, and
they comprise 3.99% of the pool'ssecuritization value, up from
2.98% for the series 2020-A pool. The Genesis-branded vehicles
inthe series 2020-B pool are the G70, G80, and G90 models.
- The percentage of SUVs/crossovers increased to 58.99% from
58.16%.
- The Kia Telluride SUV is included in the collateral pool for
the third time (increasing to 7.15% ofsecuritization value from
6.44%), while the Hyundai Palisade SUV is included for the
secondtime (increasing to 5.77% of securitization value from
1.75%).
Transaction Overview
HALST 2020-B will be HCA's 20th auto lease transaction and its
second in 2020. HCA also issuednumerous prior auto loan
transactions. The series 2020-B transaction is structured similarly
toHCA's previous transactions and other lease securitizations with
nonamortizing target creditenhancement. The pool's structure
incorporates an initial reserve amount equal to 1.00% of theinitial
securitization value and a 12.50% overcollateralization amount,
which builds to a target of13.50% of the initial securitization
value. The series 2020-B pool's estimated excess spread
isapproximately 4.02% per year. The transaction uses a
sequential-pay method in which it cannotrelease hard credit support
until all the rated notes are paid in full. Excess spread, however,
canbe released as long as the overcollateralization is at its
target level.
The series 2020-B pool will securitize mainly 36-month leases
(71.16%) and 48-month leases(19.23%) originated by HCA. The monthly
lease payments and lease residual values will serve asthe notes'
collateral. The securitized pool comprises eight Hyundai models, 12
Kia models, andthree Genesis models, and will consist primarily of
2018, 2019, and 2020 model year vehicles.
All of the leased vehicles included in the transaction will be
titled in the origination trust'sname--Hyundai Lease Titling Trust,
a Delaware statutory trust created in 2005. The originationtrust
will issue a transaction special unit of beneficial interest (SUBI)
certificate, which representsa beneficial interest in the
origination trust that relates solely to the specified auto
leasereceivables and related residual values that are dedicated to
repaying the SUBI and, ultimately,the rated notes. HALST 2020-B
will own the rights, title, and interest to the SUBI certificate
andwill 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 toHyundai HK Lease LLC (the
depositor) as a true sale. The depositor will then transfer and
assignthe SUBI certificate to HALST 2020-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
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2513762
Presale: Hyundai Auto Lease Securitization Trust 2020-B
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A and B notes, each of which will represent an obligation of the
issuing entity (see chart 1 for thetransaction structure).
Chart 1
Pension Benefit Guaranty Corp. (PBGC) can file a lien against
the assets of any member ofHyundai's controlled group if minimum
contribution payments to Hyundai's defined benefitpension plan are
not paid as required by law, or if Hyundai terminates an
underfunded definedbenefit pension plan. As a member of the
controlled group, HCA's assets could be subject to anyPBGC lien
(including those leases and vehicles designated to the SUBI, which
serve as the sourceof payments on the issued notes) if Hyundai's
minimum contribution payments are not made or ifHyundai terminates
an underfunded defined benefit plan. In our view, the risk of a
PBGC lien onthe leases and residuals assigned to the SUBI, which is
pledged to the notes, is mitigated by therelatively small size of
the pension plan relative to the origination trust assets, as well
as thecompany's historical ability to keep the plan funded at the
appropriate levels.
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Presale: Hyundai Auto Lease Securitization Trust 2020-B
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Payment Structure
On each payment date, distributions will be made from available
funds according to the paymentpriority 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
theadministrator.
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 thepreceding
payment date, is greater than the aggregate securitization value at
the end of the relatedcollection 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 ofthe
preceding payment date, is greater than the aggregate
securitization value at the end of the relatedcollection 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).
9 Pro rata, to the indenture trustee, the origination trustee,
or the owner trustee, any amounts due according tothe transaction
documents.
10 Any excess amounts to the certificateholder.
(i)The regular principal distribution amount is designed to
build the initial overcollateralization level to 13.50% of the
initial securitization valuetarget. All of the required payments on
the notes will be due and payable on each payment date (the 15th of
each month or the next businessday, beginning Oct. 15, 2020).
On each payment date after note acceleration following an event
of default, the indenture trusteewill 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, andindemnity payments
under the indenture, the origination trust agreement, or the trust
agreement asapplicable, provided that aggregate expenses payable to
the indenture, origination, and owner trustees underthis 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
theadministrator.
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 willapply: 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 theclass B noteholders until paid in full.
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Presale: Hyundai Auto Lease Securitization Trust 2020-B
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Table 2
Event Of Default Payment Waterfall (cont.)
Priority Payment
6 If an indenture default has occurred from a breach of a
representation, warranty, or covenant, then thefollowing priority
will apply: first, interest to the class B noteholders; then
principal to the class A-1noteholders until paid in full; then
principal, pro rata, to the class A-2, A-3, and A-4 noteholders
until paid infull; 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 2020-B pool will be
secured by leases with an aggregatesecuritization value of
$1,176,382,864. The leases' securitization value is the sum of the
presentvalue of each lease's remaining monthly payments and the
present value of the leased vehicle'sbase residual value (both
discounted at 6.00%). Each leased vehicle's base residual value
willequal the least of the stated residual value set by HCA at the
lease's inception, the maximumresidualized manufacturer's suggested
retail price (MRM) residual value estimate established bythe ALG at
the lease's inception, and the maximum ALG's refreshed MRM residual
value estimatefrom its July-August 2020 edition. The MRM is an ALG
adjustment that effectively caps the valueof 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 theindividual
leases. The stated residual values are typically set higher than
the ALG residual value toreduce the lease payments that the lessees
owe under the lease contracts (a process called leasesubvention).
Therefore, the definition of the securitization's base residual
value provides a moreconservative estimate of each vehicle's future
value and helps to mitigate noteholders' exposureto losses
associated with lease subvention. The undiscounted base residual is
$771,166,671, or65.55% of the HALST 2020-B pool's securitization
value.
Managed Portfolio
The managed portfolio saw substantial growth from 2010 to 2017,
as a result of Hyundai's largemarket-share growth. As of June 30,
2020, Hyundai's total serviced lease portfolio comprised833,058
contracts totaling $14.02 billion, down from 825,319 contracts
totaling $16.01 billion asof June 30, 2019 (see table 3). As of
June 30, 2020, total delinquencies increased to 1.53% from1.36% a
year earlier. Annualized net losses, as a percentage of the average
dollar amount of leasecontracts outstanding, increased to 0.61% for
the six months ended June 30, 2020, from 0.55% ayear earlier,
albeit with a decreasing portfolio size.
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Presale: Hyundai Auto Lease Securitization Trust 2020-B
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Table 3
Total Managed Portfolio
Six months endedJune 30 Year ended Dec. 31
2020 2019 2019 2018 2017 2016 2015 2014 2013
Leasecontractsoutstanding(mil. $)
14,015.54 16,008.52 15,126.55 16,466.80 17,426.01 16,323.65
14,364.43 12,063.99 9,923.38
Avg. dollaramount ofleasesoutstanding(mil. $)
15,557.49 16,274.00 16,129.27 17,217.73 16,761.42 14,896.78
12,684.78 10,537.04 8,076.06
No. ofcontractsoutstanding
833,058 825,319 757,757 844,606 856,274 786,397 705,512 605,545
510,997
30-plus-daydelinquencies(%)(i)
1.53 1.36 1.31 1.55 1.51 1.51 1.37 1.25 1.22
No. ofrepossessions(%)(ii)
0.69 0.70 0.72 0.78 0.77 0.62 0.56 0.55 0.36
Net losses(%)(iii)
0.61 0.55 0.57 0.65 0.61 0.56 0.36 0.33 0.27
(i)As a percent of the number of contracts outstanding. (ii)As a
percent of the average number of lease contracts outstanding.
(iii)As a percentof average dollar amount of leases outstanding.
Annualized. HCA--Hyundai Capital America.
As of June 30, 2020, Hyundai's total serviced lease portfolio
reported residual gain on returnedvehicles that equaled 2.89% of
the vehicles' ALG forecast residual values (see table 3a).
After three years of low-teens return rates from 2011 to 2013,
return rates started to inch up asvehicle supply grew and consumers
increasingly turned to larger, less fuel-efficient vehicles;return
rates were 50% for June 30, 2020. Hyundai does not count a purchase
of the underlyingvehicle by the grounding dealer as a return, which
results in return rates that appear to be lowerthan those of its
peers.
Table 3a
Total Managed Portfolio: Residual Value Loss Experience
Six monthsended June 30 Year ended Dec. 31
2020 2019 2018 2017 2016 2015 2014 2013
Vehicles returned to HCA (%)(i) 50 42 40 35 34 29 21 14
Total gain (or loss) on ALG residuals onvehicles returned to HCA
(%)(ii)
2.89 (0.15) (1.92) (7.00) (7.22) (7.67) (1.00) 2.91
(i)As a percent of the number of vehicles scheduled to
terminate. (ii)As a percent of ALG's residual value of returned
vehicles sold by HCA.HCA--Hyundai Capital America. ALG--Automotive
Lease Guide.
The dollar amount of average outstanding lease contracts in the
Kia portfolio decreasedapproximately 3% as of June 30, 2020,
compared with the same period a year earlier; and the
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average outstanding dollar amount of the Hyundai portfolio
decreased approximately 6% over thesame period.
The delinquency and net loss percentages for the Hyundai- and
Kia-managed portions of the totallease portfolio are shown in
tables 4 and 5, respectively. The Hyundai-managed portion
exhibiteda 16 basis point increase in total delinquencies as of
June 30, 2020, compared with a year earlier,while the Kia-managed
portion exhibited a 17 basis point increase. The number of
repossessionsas a percentage of the average number of lease
contracts outstanding decreased over the sameperiod. Hyundai's and
Kia's annualized net losses increased by two and 10 basis
points,respectively, for the six months ended June 30, 2020,
compared with the same period in 2019.
The HALST 2020-B's collateral pool is split equally between
Hyundai and Kia vehicles and includeapproximately 4% of
Genesis-branded vehicles.
Table 4
Hyundai Managed Portfolio
Six months endedJune 30 Year ended Dec. 31
2020 2019 2019 2018 2017 2016 2015 2014 2013
Lease contractsoutstanding (mil. $)
7,240.48 8,275.72 7,841.80 8,683.40 9,268.63 8,814.66 7,695.45
6,734.96 6,061.41
Avg. dollar amount ofleases outstanding(mil. $)
8,036.34 8,520.49 8,413.36 9,086.86 9,041.64 7,956.42 7,010.60
6,261.74 5,189.37
No. of contractsoutstanding
433,890 435,209 399,477 449,247 457,629 426,085 382,188 340,058
312,519
30-plus-daydelinquencies (%)(i)
1.22 1.07 1.03 1.24 1.16 1.14 1.27 1.22 1.18
No. of repossessions(%)(ii)
0.50 0.52 0.54 0.57 0.58 0.49 0.51 0.54 0.36
Net losses (%)(iii) 0.42 0.40 0.38 0.47 0.44 0.42 0.30 0.32
0.28
(i)As a percent of the number of contracts outstanding. (ii)As a
percent of the average number of lease contracts outstanding.
(iii)As a percentof average dollar amount of leases outstanding.
Annualized. HCA--Hyundai Capital America.
Table 5
Kia Managed Portfolio
Six months endedJune 30 Year ended Dec. 31
2020 2019 2019 2018 2017 2016 2015 2014 2013
Lease contractsoutstanding (mil. $)
6,775.06 7,732.80 7,284.75 7,783.40 8,157.38 7,508.99 6,668.98
5,329.04 3,861.97
Avg. dollar amountof leasesoutstanding (mil. $)
7,521.15 7,753.52 7,715.91 8,130.87 7,719.78 6,940.36 5,674.18
4,275.31 2,886.69
No. of contractsoutstanding
399,168 390,110 358,280 395,359 398,645 360,312 323,324 265,487
198,478
30-plus-daydelinquencies (%)(i)
1.85 1.69 1.62 1.90 1.91 1.96 1.49 1.29 1.28
No. of repossessions(%)(ii)
0.89 0.90 0.92 1.01 1.00 0.78 0.64 0.56 0.35
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Presale: Hyundai Auto Lease Securitization Trust 2020-B
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Table 5
Kia Managed Portfolio (cont.)
Six months endedJune 30 Year ended Dec. 31
2020 2019 2019 2018 2017 2016 2015 2014 2013
Net losses (%)(iii) 0.82 0.72 0.78 0.84 0.81 0.74 0.44 0.36
0.25
(i)As a percent of number of contracts outstanding. (ii)As a
percent of the average number of lease contracts outstanding.
(iii)As a percent ofaverage dollar amount of leases outstanding.
Annualized. HCA--Hyundai Capital America.
Securitization/Surveillance Performance
We maintain current ratings on five active HALST transactions
that closed between 2018 and 2020(see charts 2-4 and table 6). In
January 2020, we raised two ratings and affirmed eight ratings
onthree HALST transactions (series 2017-C, 2018-A, and 2018-B) and
revised our lifetime net creditloss expectation to 0.50% for each
series (see "Two Ratings Raised, Eight Affirmed On ThreeHyundai
Auto Lease Securitization Trust Transactions," published Jan. 28,
2020). Eachtransaction remains adequately enhanced at this time. We
will continue to monitor theirperformance to determine if the
assigned ratings are sufficient and if any rating actions aredeemed
appropriate.
Chart 2
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Table 6
Performance Data For Outstanding Hyundai Auto Lease
Securitization TrustTransactions(i)
Transaction/series Month
PoolFactor
(%)Credit
CNL(%)
Cumulative net residuallosses/(gains) as a % of
aggregate initialsecuritization value
Initialexpected
lifetime creditCNL (%)
Revisedexpected
lifetime creditCNL (%)(ii)
2018-A 30 24.11 (0.03) (4.46) 1.15 0.50
2018-B 26 35.72 0.71 (2.30) 1.15 0.50
2019-A 18 63.05 0.38 (0.34) 1.00 N/A
2019-B 12 75.29 0.24 (0.09) 1.00 N/A
2020-A 7 87.40 0.15 0.00 0.90 N/A
(i)As of the August 2020 distribution date. (ii)Revised in
January 2020 for series 2018-A and 2018-B.
Chart 3
In terms of residual performance, the paid-off securitizations
experienced residual gains as apercentage of the initial
securitization value, and the outstanding series are generally
reportingresidual gains on the outstanding series pools (see chart
4).
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Chart 4
Collateral Analysis
The HALST 2020-B securitized pool comprises 58,431 prime auto
lease receivables (see table 7).Hyundai and Kia vehicles account
for approximately 48% of the pool's securitization value each,with
Genesis branded vehicles accounting for approximately 4%. The top
five models (Tucson,Sportage, Santa Fe, Sonata, and Sorento)
account for approximately 54% of the securitizationvalue. The pool
consists primarily of leases with 36-month original terms (71%) and
48-monthoriginal terms (19%). The pool's weighted average FICO
score is 761, and approximately 53% of theobligors in the
securitized pool have FICO scores of 750 and higher (see table
7).
All leases for which HCA's records as of the cutoff date
indicate that the related lessees receivedan extension (including
for reasons related to the COVID-19 pandemic) have been excluded
fromthe pool.
Approximately 1.79% of the aggregate securitization value as of
the cutoff date qualify forHyundai's Job Loss Protection
Program.
Table 7
HALST Original Pool Characteristics
Hyundai Auto Lease Securitization Trust
2020-B 2020-A 2019-B 2019-A 2018-B 2018-A
No. of leases 58,431 53,957 59,924 43,583 42,931 57,131
MSRP ($) 1,694,273,534 1,523,489,250 1,675,987,530 1,194,907,441
1,202,779,045 1,543,594,780
Book value ($)(i) 1,505,087,336 1,349,125,043 1,458,910,453
1,063,733,086 1,073,914,396 1,407,041,211
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Table 7
HALST Original Pool Characteristics (cont.)
Hyundai Auto Lease Securitization Trust
2020-B 2020-A 2019-B 2019-A 2018-B 2018-A
Securitizationvalue ($)
1,176,382,864 1,021,482,211 1,058,544,313 812,087,923
808,988,467 1,033,368,258
Avg. securitizationvalue ($)
20,133 18,931 17,665 18,633 18,844 18,088
Securitization(discount) rate (%)
6.00 7.00 7.15 7.90 7.90 7.50
Base residualvalue(undiscounted) ($)
771,166,671 644,843,490 653,533,802 517,915,596 521,088,564
661,257,043
Avg. base residualvalue ($)
13,198 11,951 10,906 11,883 12,138 11,574
Base residual as a% of the aggregatesecuritizationvalue
65.55 63.13 61.74 63.78 64.41 63.99
Base residual as a% of the MSRP
45.52 42.33 38.99 43.34 43.32 42.84
Weighted avg.original term(mos.)(ii)
38.38 39.17 38.5 39.9 38.9 38.9
Weighted avg.remaining term(mos.)(ii)
27.51 28.70 27.4 29.5 30.3 30.2
Weighted avg.seasoning(mos.)(ii)(iii)
10.87 10.48 11.1 10.4 8.6 8.6
Original term (%)
24 months 1.49 0.86 0.61 0.46 1.67 3.04
25-36 months 71.16 70.82 71.04 65.43 72.40 68.47
37-42 months 8.12 1.38 8.95 1.29 0.05 2.19
43-48 months 19.23 26.93 19.40 32.82 25.87 26.31
Weighted avg.FICO score(iv)
761 752 750 746 746 746
New vehicles (%) 100 100 100 100 100 100
Hyundai vehicles(%)
48.38 48.53 47.72 50.00 48.12 49.94
Kia vehicles (%) 47.63 48.50 48.85 48.37 47.91 50.06
Genesis vehicles(%)
3.99 2.98 3.43 1.63 3.97 N/A
Top five vehicles by model (% of securitization value)
Tucson=14.18 Tucson=12.83 Tucson=12.95 Tucson=13.98
Elantra=12.25 Elantra=13.25
Sportage=12.65 SantaFe=10.01
Sorento=12.71 Sorento=13.97 Sorento=12.24 Sorento=13.08
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Table 7
HALST Original Pool Characteristics (cont.)
Hyundai Auto Lease Securitization Trust
2020-B 2020-A 2019-B 2019-A 2018-B 2018-A
Santa Fe=9.80 Sportage=9.83 Santa Fe=10.96 Elantra=10.89
Tucson=11.56 SantaFe=12.57
Sonata=8.89 Sonata=9.35 Sportage=10.65 SantaFe=10.62
SantaFe=11.46
Tucson=12.23
Sorento=8.15 Sorento=9.31 Sonata=9.45 Sonata=10.50 Optima=9.77
Optima=11.10
Total 53.67 51.34 56.71 59.95 57.29 62.23
Vehicle type (% of securitization value)
Car(v) 40.28 37.73 40.59 43.27 48.86 45.15
CUV/SUV(vi) 58.99 58.16 55.57 52.23 45.95 48.77
Minivan/wagon(vii) 0.73 4.11 3.84 4.50 5.19 6.08
Top four state concentrations (%)
NY=16.39 FL=13.99 FL=14.89 CA=15.10 FL=17.11 CA=16.18
FL=13.99 CA=13.92 CA=14.03 FL=14.78 CA=16.35 FL=15.56
CA=11.72 NY=13.80 NY=13.67 NY=12.04 NY=11.50 NY=12.34
NJ=10.77 NJ=10.20 NJ=9.63 NJ=9.54 NJ=8.41 NJ=8.64
Note: All percentages are expressed as a percentage of the
securitization value. (i)The book value is determined based on the
leases' capitalizedamounts minus the related leased vehicles'
accumulated depreciation. (ii)Average weighted by the
securitization value. (iii)Seasoning refers tothe number of months
elapsed since the leases' origination. (iv)FICO scores are
calculated excluding accounts for which no FICO score isavailable
(approximately 0.07% of the series 2020-B pool as a percentage of
the securitization value). (v)For the series 2020-B pool, car
includesAccent, Cadenza, Elantra, Forte, G70, G80, G90, Ioniq,
K900, Optima, Rio, Sonata, Stinger, and Veloster. (vi)This includes
Niro, Palisade, SantaFe, Sorento, Sportage, Telluride, and Tucson.
(vii)This includes Sedona and Soul. MSRP--Manufacturer's suggested
retail price. N/A--Notapplicable.
Collateral Residual Timing
The leases in the HALST 2020-B pool are scheduled to mature as
follows (all percentages areexpressed as a percentage of the pool's
aggregate undiscounted base residual value):
- 7.74% in 2021,
- 50.72% in 2022,
- 35.31% in 2023, and
- 6.23% in 2024.
Leases will mature each month, beginning in September 2021 (see
chart 5). The highest baseresidual maturity level in any one month
is 4.95%, which is lower than our 5% benchmark poolconcentration
limit and occurs in August 2022 and April 2023, resulting in no
maturity distributionexcess concentration haircut (see Table 9).
The highest percentage of base residual maturities inany
three-month period is approximately 14.49%, which we expect to
occur from June 2022through August 2022. The majority of the
residuals mature two or three years after the closingdate. If
vehicle values are distressed in 2022 and 2023, there is increased
risk that the realizedresidual values will be lower than the base
residuals. We believe this risk is mitigated by thetransaction's
sequential payment structure, in which the overcollateralization
and reserve
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account target amounts will not amortize until all of the notes
are paid in full. In the transaction'szero loss, zero prepay cash
flow scenario, more than 80% of the residuals will have come due
bythe time the notes are paid in full.
Chart 5
S&P Global Ratings' Expected Credit And Residual Losses
HALST 2020-B has two principal risk components: credit and
residual risks.
Credit risk
The obligor's credit profile determines the credit risk. To
derive the base-case credit loss for theseries 2020-B transaction,
we projected the static pool losses on HCA's lease
portfoliooriginations, segmented by FICO score and lease term. We
then weighted the projections by theactual concentration of those
various segments in the series 2020-B pool. We also considered
theHALST 2020-B pool's collateral credit quality, Hyundai's overall
managed pool performance, theperformance of outstanding HALST
securitizations, and our forward-looking view of the economy.Based
on this information, we expect the HALST 2020-B pool's cumulative
net credit loss to be0.90% of the pool's securitization value.
Residual risk
We examined and assessed residual loss on the series 2020-B pool
according to our auto leasecriteria, "Revised General Methodology
and Assumptions for Rating U.S. ABS Auto LeaseSecuritizations,"
published Nov. 29, 2011.
In our analysis of the series 2020-B pool's residual risk, we
considered the following factors:
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- 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-vehiclevalues,
- The basis for the differences between the actual values and
the forecasts,
- ALG's basis for its 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-specifichaircuts to the series 2020-B
pool's base residual value. This is commensurate with our 'AAA'
and'AA+' rating scenarios, respectively.
Excess concentration haircut
In addition to the aforementioned base haircut, we applied a
haircut to the amount ofnondefaulted lease residuals exceeding the
concentration limits applicable to the benchmark pool(excess
concentrations) as outlined in our auto lease criteria. The haircut
applied to excessconcentrations commensurate with each rating
scenario is shown in table 8.
Table 8
Additional Excess Concentration Haircut
Scenario (preliminary rating) AAA (sf) AA+ (sf)
Haircut applied to the excess concentration as a % of
undiscounted baseresidual value
13.0 11.5
The excess 9.94% concentration results in additional 'AAA' and
'AA+' base residual value haircutsof 1.29% and 1.14%, respectively,
bringing the total base residual value haircuts applied to
theseries 2020-B pool to 27.29% and 24.14% at the 'AAA' and 'AA+'
levels (see table 9).
Table 9
Benchmark Pool Excess Concentrations
HALST2020-B
Benchmark poolconcentration limit
Excessconcentration
One-month maturity in excess of benchmark (% ofundiscounted base
residual)
-- 5.00 --
Individual model (Tucson) (%) 14.63 20.00 --
Full-size and mid-size SUVs, full-size pickups, andvans (%)
30.91 30.00 0.91
Compact and hybrid cars (%) 23.01 30.00 --
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Table 9
Benchmark Pool Excess Concentrations (cont.)
HALST2020-B
Benchmark poolconcentration limit
Excessconcentration
New and discontinued models (%) 19.03 10.00 9.03
Total excess concentration (%) -- -- 9.94
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 automanufacturer's creditworthiness. Our
auto lease criteria apply haircuts to the base residual valueof the
vehicles produced by manufacturers with speculative-grade issuer
credit ratings (rated'BB+' or below).
Hyundai Motor Co. and Kia Motors Corp. manufacture the leased
vehicles backing the HALST2020-B pool. Both companies are rated
'BBB+'. On Sept. 14, 2020, the ratings on both companieswere
affirmed on better-than-expected profitability (see "Hyundai Motor
Group CompaniesRatings Affirmed On Better-Than-Expected
Profitability; Outlook Negative," published Sept. 14,2020).
Based on our current issuer credit ratings on Hyundai and Kia,
we did not apply aspeculative-grade manufacturer haircut to the
HALST 2020-B transaction.
Low diversification haircut
For pools with low diversification, as described in our auto
lease criteria, we apply a lowdiversification haircut in addition
to the aforementioned haircuts. Our auto lease criteria describethe
six conditions for which, if met by the securitized lease pool, we
would apply this type ofhaircut. 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.
- The pool contains three or fewer individual models.
- The pool contains more than 75% of full-size and midsize SUVs,
full-size pickup trucks, andfull-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 2020-B pool does not meet any of these six conditions,
so we did not apply the lowdiversification haircut.
Total stressed residual losses
We analyzed the HALST 2020-B lease pool, applied the relevant
residual value haircuts, andassessed stressed return rates of
100.00% and 97.50% at the 'AAA' and 'AA+' rating levels,
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respectively (representing the loss frequency on nondefaulted
leased vehicles of 90.00% and91.00%), to generate stressed residual
loss under each rating scenario (see table 10).
Table 10
Stressed Residual Loss
Scenario (preliminary rating) AAA (sf) AA+ (sf)
Residual haircut as a % of undiscounted base residual 26.00
23.00
Additional excess concentration haircut (%)(i) 1.29 1.14
Total residual haircut as a % of base residual value 27.29
24.14
Total residual haircut as a % of securitization value 16.28
14.18
(i)The excess concentration haircuts are derived by multiplying
the total excess concentration calculated in table 9 by each of the
ratingcategory haircuts shown in table 8.
Cash Flow Modeling
We tested HALST 2020-B's proposed structure using cash flow
scenarios to determine if the creditenhancement levels were
sufficient to pay timely interest and principal in full by the
notes' legalfinal maturity dates under our 'AAA' and 'AA+' stress
scenarios. We assumed a 100% turn-in rateon the nondefaulting
leases (91.00%) at the 'AAA' rating level and a 97.50% turn-in rate
on thenondefaulting leases (91.90%) at the 'AA+' rating level,
together with no prepayments.
The cash flow results demonstrate that the notes are enhanced to
the degree necessary towithstand a level of stressed credit and
residual losses that is consistent with the assignedpreliminary
ratings. The class A notes can withstand a cumulative net credit
loss of 4.50% of thesecuritization value and residual losses equal
to 16.28% of the securitization value on 100% of thenondefaulting
leases that reach their lease maturity. The class B notes can
withstand acumulative net credit loss of 4.05% of the
securitization value and residual losses equal to 14.18%of the
securitization value on 97.50% of the nondefaulting leases that
reach their lease maturity(see table 11).
Table 11
Cash Flow Assumptions And Results
Class
A B
Scenario (rating) AAA AA+
Cumulative net loss percent (%) 5.00 4.50
Cumulative net loss timing (mos.) 12/24/36 12/24/36
Cumulative net loss (%) 40/80/100 40/80/100
Voluntary prepayments (%) 0.00 0.00
Recoveries (%) 50 50
Recovery lag (mos.) 4 4
Residual haircut (%)
Total residual haircut as a percentage of the undiscounted base
residual value 27.29 24.14
Total residual haircut as a percentage of the securitization
value 16.28 14.18
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Table 11
Cash Flow Assumptions And Results (cont.)
Class
A B
Vehicle return rate (%) 100.00 97.50
Residual realization lag (mos.) 2 2
S&P Global Ratings' stressed credit and residual loss as a
percentage of thesecuritization value (%)
20.78 18.23
Result (%)
Approximate credit enhancement in the transaction based on
S&P GlobalRatings' credit stress and break-even residual stress
as a percentage of thesecuritization value (%)
24.05 19.42
Sensitivity Analysis
In addition to running stressed cash flows to analyze the amount
of credit and residual losses thetransaction can withstand, we ran
a sensitivity analysis to determine how credit and residuallosses
that are in line with a moderate ('BBB') stress scenario could
affect our ratings on thenotes.
In our view, the preliminary ratings assigned to the class A and
B notes are consistent with thecredit stability limits specified by
section A.4 of the Appendix contained in S&P Global
RatingsDefinitions (see "S&P Global Ratings Definitions,"
published Aug. 7, 2020). This indicates that wewould not assign
'AAA' and 'AA' ratings if, under moderate stress conditions, the
ratings would belowered by more than one category within the first
year.
Chart 6
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Money Market Tranche Sizing
The proposed money market tranche (the class A-1 notes) has a
12-month legal final maturitydate (Oct. 15, 2021). To test whether
the money market tranche can be repaid by month 12, we rancash
flows using assumptions to delay the principal collections during
the 12-month period. In ourcash flow run, we assumed zero defaults
and a zero absolute prepayment speed on all leases. Wealso stressed
the recognition of the monthly lease payments and base residual
amounts byapplying a lag of one and two months, respectively. Based
on our cash flow runs, approximatelyeight 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 whenthese notes would pay off in
our stressed cash flow scenarios. In our cash flows for
thelongest-dated security (class B), at least seven months were
added to the tenor of thelast-maturing receivable in the pool to
accommodate extensions and residual realization on thereceivables.
In all of our cash flow scenarios, we confirmed that there is
sufficient creditenhancement both to cover losses and to repay the
related notes in full by their legal final maturitydates.
HCA
HCA (BBB+/Negative/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 (BBB+/Negative/--). Theremaining 20%
is owned by Kia Motors America Inc., an affiliate of HCA and a
wholly ownedsubsidiary of Kia (BBB+/Negative/--). 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 thecountry and arranges financing for facilities
refurbishment, real estate purchases, construction,working capital
requirements, and dealer inventory.
Related Criteria
- Criteria | Structured Finance | Legal: U.S. Structured Finance
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Sovereign Risk In Rating StructuredFinance Securities: Methodology
And Assumptions, Jan. 30, 2019
- General Criteria: Methodology For Linking Long-Term And
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- Criteria | Structured Finance | General: Methodology: Criteria
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Payment Priorities Or Sale Of Collateral Upon ANonmonetary EOD,
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Assessing Operational Risk In
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Structured Finance Transactions, Oct. 9, 2014
- Criteria | Structured Finance | General: Criteria Methodology
Applied To Fees, Expenses, AndIndemnifications, July 12, 2012
- General Criteria: Global Investment Criteria For Temporary
Investments In TransactionAccounts, May 31, 2012
- Criteria | Structured Finance | ABS: Revised General
Methodology And Assumptions For RatingU.S. ABS Auto Lease
Securitizations, Nov. 29, 2011
- General Criteria: Principles Of Credit Ratings, Feb. 16,
2011
- Criteria | Structured Finance | ABS: General Methodology And
Assumptions For Rating U.S. AutoLoan Securitizations, Jan. 11,
2011
- Criteria | Structured Finance | General: Methodology For
Servicer Risk Assessment, May 28,2009
- Criteria | Structured Finance | ABS: Assessing the Risk of
Pension Plan Terminations on U.S.Auto Lease Securitizations, Aug.
17, 2004
Related Research
- Research Update: Hyundai Capital America Ratings Affirmed On
Better-Than-ExpectedProfitability At Parent Company; Outlook
Negative, Sept. 14, 2020
- Research Update: Hyundai Motor Group Companies Ratings
Affirmed On Better-Than-ExpectedProfitability; Outlook Negative,
Sept. 14, 2020
- Economic Research: U.S. Biweekly Economic Roundup: Job Gains
Slow Amid Signs Of A LongRecovery To Come, Sept. 4, 2020
- U.S. Real-Time Economic Data Continues To Paint A Mixed
Picture, Aug. 14, 2020
- Hyundai Motor Co., Aug. 11, 2020
- Kia Motors Corp., Aug. 11, 2020
- S&P Global Ratings Definitions, published Aug. 7, 2020
- The Potential Effects Of COVID-19 On U.S. Auto Loan ABS, March
26, 2020
- How The Wave Of Negative Rating Actions On Global Automakers
Has Affected U.S. Auto ABSRatings, Feb. 13, 2020
- Two Ratings Raised, Eight Affirmed On Three Hyundai Auto Lease
Securitization TrustTransactions, Jan. 28, 2020
- Global Structured Finance Scenario And Sensitivity Analysis
2016: The Effects Of The Top FiveMacroeconomic Factors, Dec. 16,
2016
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Research:RationaleChanges from HALST 2020-ATransaction
OverviewLegal StructurePayment StructureResidual ValueManaged
PortfolioSecuritization/Surveillance PerformanceCollateral
AnalysisCollateral Residual TimingS&P Global Ratings' Expected
Credit And Residual LossesCredit riskResidual riskBase
haircutExcess concentration haircutSpeculative-grade manufacturer
haircutLow diversification haircutTotal stressed residual
losses
Cash Flow ModelingSensitivity AnalysisMoney Market Tranche
SizingLegal Final MaturityHCARelated CriteriaRelated Research