AMAG Leasing has established a dual recourse conditional pass-through programme for issuance backed by auto lease receivables, to which Fitch has assigned an expected triple-A rating, noting that the structure is based on similar issuance templates to other Swiss covered bonds.

Although auto loans have periodically been touted as an area into which covered bond-type products could be expanded, such issuance from the Swiss company would represent a first for the sector.

Contractual covered bond issuance was revived by Valiant Bank in Switzerland in 2017, with Credit Suisse and Crédit Agricole next bank following suit, after CS and UBS had wound down earlier programmes.

According to Fitch today (Monday), AMAG Leasing AG’s bonds will be backed by a cover pool of Swiss auto lease receivables (including residual value (RV)) granted to private and commercial customers. They will have a conditional pass-through (CPT) feature, with a maturity extension of seven years, longer than a maximum tenor of five years for the eligible assets.

The rating agency said its analysis is based on an assumed first issue denominated in Swiss francs and with a 3.25 year maturity, while the initial cover pool is CHF348.6m (€330m). The bonds will constitute senior unsecured obligations of ALAG Leasing, guaranteed by AMAG Leasing Auto Covered Bond AG, a special purpose entity that will be granted security of the cover assets.

Fitch does not disclose ALAG Leasing’s issuer rating, but said the covered bond rating is notched up from this, as the auto covered bonds benefit from liquidity protection in the form of the seven year CPT maturity extension and a dedicated liquidity reserve covering three months of senior costs and interest payments, and high recoveries given default. It noted that contractual provisions in the programme include mandatory overcollateralisation (OC), rules to disregard delinquent leases in the asset cover test (ACT), and the existence and role of an independent asset monitor.

The expected rating is based on an asset percentage (AP) of 79.0%, lower than Fitch’s AAA break-even AP of 80.5% (corresponding to minimum OC of 24.2%), which the rating agency said is predominantly driven by the credit quality of the cover pool, notably RV risk.

Unlike the Swiss banks that issue contractual covered bonds, AMAG is not regulated by Swiss Financial Market Supervisory Authority (Finma).

As well as previously issuing ABS backed by similar assets, which Fitch has also rated, AMAG Leasing in September issued a debut senior green bond, a CHF175m 3.75 year deal.

AMAG leases out Volkswagen group cars.