medium · Asset-Backed Securities asset-nuances
An Auto Lease ABS pool and an Auto Loan ABS pool both have an expected 2.0% credit loss rate.
Why would the Auto Lease ABS typically require higher credit enhancement for a AAA rating?
- Lease pools include residual value risk in addition to credit risk
- Lease pools are less diversified by geography
- Lease payments are legally easier to discharge in bankruptcy
- Auto leases have higher prepayment sensitivity to interest rates
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