Standard & Poor's Rates Falcon Auto Lease
10 November 1998
Standard & Poor's Rates Falcon Auto Lease Securitization Trust 98-B Notes
NEW YORK, Nov. 9 -- Standard & Poor's today assigned its
single-'A' rating to Falcon Auto Lease Securitization Trust 1998-B auto lease
backed notes and its triple-'B' rating to the trust's auto lease backed
certificates. This is Falcon Capital L.L.C.'s third private asset-backed
securitization of retail operating leases and the first to be rated by
Standard & Poor's.
Credit support will be provided by 4.00% certificates class subordination
and a spread account that builds from 7.00% to 10.00% of the current pool
balance from excess interest collections and has a floor of 4.00% of the
original pool balance. Performance triggers are in place, which if breached,
uncap the spread account until they are cured.
A strong transaction structure is in place in which the trust will issue
a class of notes, which are senior to the Certificates in the priority of
payments. The certificates will not receive any principal payments until the
notes have been paid in full. This sequential pay feature provides a
nonamortizing form of credit enhancement for the notes. Another strength in
the deal structure is that once the outstanding notes and certificates balance
equals the aggregate residual value of the leases remaining, the transaction
will turbo excess spread to pay down principal. This will create additional
credit support in the latter half of the transaction. In addition, gains
realized on the sale of a vehicle at its scheduled lease end will be deposited
into the spread account and be available to partially offset future losses.
Finally, leases whose lease rates are less than 7.34% (the sum of the weighted
average pass through rate and the servicing fee) have been discounted at a
rate of 7.34% to present value thereby reallocating a portion of the principal
balances of such leases to increase their lease rates. This ensures that
there is adequate finance income on these underwater contracts to pay interest
accrued on the bonds.
The transaction securitizes a portion of Falcon's retail auto lease
portfolio. The collateral at closing consists of 945 closed-end lease
contracts having an aggregate unpaid net investment of about $23.49 million.
A prefunding account will be funded at closing with $5.87 million from the
sale proceeds of the notes and certificates.
The weighted average lease rate of the contracts is 8.54% and a weighted
average net investment of $24,866. Roughly 80.3% of the pool balance relate
to new automobiles and light trucks. The top three vehicle manufacturer
concentrations are General Motors, Chrysler, and Honda. The weighted average
seasoning for the pool is four months with a weighted average original term to
maturity of 45 months. The three highest state concentrations are Kansas,
Arizona, and Oklahoma.
Falcon Capital is a specialty finance company that began originating and
servicing automobile leases in September 1996. The company's focus is on the
prime credit sector in the Southwest and Midwest. Falcon's management and a
majority of Falcon employees had worked together before Falcon's inception.
Currently, the company's servicing portfolio consists of 2,208 lease contracts
with a net investment of about $51.17 million The company originates leases at
its Scottsdale, Ariz. headquarters as well as four branch offices in the
Southwest and Midwest. Collections are centrally located.
Total delinquencies (over 30 days) in Falcon's serviced portfolio
decreased to .22% as of Sept. 30, 1998 from 2.23% in the prior-year comparable
period. Repossessions as a percentage of average lease contracts outstanding
decreased to 2.76% annualized for the nine months ended Sept. 30, 1998 from
4.19% for the year-ended 1997. Net losses as a percentage of average net
investment outstanding annualized for the nine months ended Sept. 30, 1998
were .58% compared to .73% for the year-ended 1997. -- CreditWire