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JUICY TESLA RESIDUAL VALUE UPDATE (+ $TSLA 🐻 CATNIP) 🚨🚨🚨

Some time ago I went over a recent $TSLA ABS transaction and pointed to some interesting residual value stuff that was going on in the deal. WELL, THERE'S AN UPDATE! First, remember what the issues with the deal were:
To recap, a large part (56%) of the value of the deal would come from the residual value of the leased cars. Additionally, Moody's was concerned that residual value data from auctions was unavailable and most of the info was coming from resale channels controlled by $TSLA.
Okay, but who was actually providing the residual value figures used in the deal credit analysis? That job was done by ALG, a data service owned by a small NASDAQ-listed company TrueCar. Note that both $TSLA (through finance subsidiary TFL) and Moody's reference the ALG figures
As a side note, the founder of TrueCar, Scott Painter, is a former $TSLA advisor and known Elon Musk stan, as he noted in this charming 2014 NYT profile:

nytimes.com/2014/02/23/bus…
Presumably, due to the noted lack of auction data, ALG was getting info from the aforementioned $TSLA controlled resale channels. Now, what's the update? Well, just before their Q2 earnings call, TrueCar announced that they are selling ALG to J.D. Power for $135M!
So, in the future, it seems that the data service $TSLA uses to provide RV estimates for its ABS deals will be owned by the same company that did our boy Elon like this, rather than the one founded by his good buddy Scott Painter.
Does this mean anything for $TSLA? Idk, but it will be interesting to see what the residual values look like in their future ABS deals 😉

Note: I have no position in $TSLA and never have. This is all just entertainment for me & hopefully a nice tidbit for fellow $TSLA watchers!
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DC Analyst
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1/x: Okay, so we want to understand how to rate the credit risk of a CLO. First, let's start from the basics: What does a CLO mean? As shown in this very helpful diagram courtesy of the SEC, a CLO is a type of ABS backed by secured corporate loans (usually of junk rating):
2/x: The portfolio of loans is packaged into an entity that issues bonds to investors, mostly with significantly higher ratings than the loans in the underlying portfolio. Now, how do we analyze this thing? Seems very complicated, right?
3/x: Well, not so much. The key to rating a CLO is to come up with a default distribution for the underlying portfolio. Namely, to answer the question "What is the probability that x% of the portfolio defaults?". Once we have that, the rest is a piece of cake.
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DC Analyst
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1/x: Since I had some fun with the $TSLA ABS thread, I absolutely cannot resist digging into the July 23, 2020 offering from everyone's favorite ABS bandits at $CACC. What kind ingenious financial engineering did they cook up this time? Let's have a look and find out!
2/x: First, let's see what $CACC is working with in terms of collateral. They have a pool of 71k used car loans with an average FICO score of 546 and $835M in principal outstanding. Out of these loans, $194M are already delinquent, not a pretty sight!
3/x: Note that 66% of the portfolio is made up of dealer loans. Let's break down what that is using the handy explainer provided by Moody's. To sum it up briefly, a dealer loan is when $CACC agrees to pay about half of Joe Sixpack's 20%+ APR used car loan to the dealer upfront.
Read 23 tweets
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@AnalystDC
1/x: To clear up some questions I've gotten about the recently announced $TSLA ABS deal, let's dig through the materials generously provided by Moody's explaining how they came up with the ratings on these notes. Firstly, let's look at the overall structure of the ABS:
2/x: To quickly explain what this all means, $TSLA is offering a total of $779M in notes backed by this pool of leased Model S/X/3s. Of these, $551M (~70%) are Aaa-rated Class A notes of varying maturities. Also being offered are $54M in Aa2-rated Class B notes,
3/x: $42M in A2-rated Class C notes, $29M in Baa2-rated Class D notes, $31M in Ba2-rated Class E notes. Finally, $TSLA is retaining $70M in face value as overcollateralization. These are junior notes that they keep ownership of to cover losses in the more senior tranches.
Read 25 tweets

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