Within the European ABS landscape, Volkswagen Leasing has solidified its role as a benchmark issuer under the Volkswagen Compartment Leasing (VCL) platform. Volkswagen uses this platform – with over 25 years of history – to finance standard German auto leases. It is probably one of the least exciting platforms but also one of the most liquid ABS investments you can buy. As this is their 41st VCL transaction—and given Volkswagen’s history —it prompts a closer look at the ESG credentials associated with the transaction.
Pricing January 18, VCL was the first of the benchmark European issuers to move this year and was generally well received by investors. The senior tranche, which priced at Euribor +46 bps, offered a notable 10 basis point yield pickup to secondary markets. Meanwhile, the class B tranche came in at a spread of +110bps and Volkswagen successfully upsized the transaction from €750m to €900m, while still receiving strong coverage levels on both tranches, with a 1.4x coverage on the class As and a 5.5x coverage on the class Bs at the increased size. So far so good.
Despite the overall positive reception, our enthusiasm was dampened by the disappointing provisions of ESG data in the transaction. As ABS transactions use special purpose vehicles (SPVs), they are treated as a pass-through vehicle by the regulators, and therefore data is required on the underlying collateral of the deal, rather than higher level corporate data. We push for carbon data disclosure across all investments, not only as an ESG assessment is part of our underwriting process, but also because it is something that is required under the sustainable finance disclosure regulation (SFDR).
One would argue that emissions data on brand new vehicles should be easy to come by. But after having been pushing for this data for a few years it is still “not available”, and we think this is greatly disappointing. Even more so as this data is provided by BMW on their BSKY transactions, and other auto deals from banks like Santander and BNPP. Hyundai, which issued for the first time ever last October under their PONY platform, was also able to provide carbon data on their German auto loans.
To be clear, Volkswagen is not the only issuer that does not provide this data, Mercedes also do not on their SILVA transactions. What is frustrating with Volkswagen, is the failure to meet their own deadlines with regards to this. Despite assurance since VCL 37 that this data would be available in the second half of 2023, the deadline was subsequently delayed until the first issue in 2024 during VCL 40 marketing, which has since been missed again in VCL 41. We understand that it takes time to build reporting systems and that systems between the lender and parent company need to be integrated, but with such a generic product as cars (I can look up the CO2 data with my registration number) and a large multinational like Volkswagen as a sponsor we expect this data to be best in class.
The absence of carbon emissions data, or even a clear roadmap, is disappointing and raises concerns about the company's commitment to transparency and accountability, particularly in light of the “dieselgate” scandal. This lack of data also means that VCL has no home in a sustainable fund, but we will keep pushing and hope that Volkswagen (and other lenders) put some more resources towards these projects and get them done.