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Ally readying another $666M dealer floorplan ABS

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Ally Bank is churning out another $666 million in notes backed by dealer inventory financing, according to rating agency presale reports.

Two separate series of notes are being issued from the Ally Master Owner Trust; the Series 2018-3 consists of five tranches of fixed-rate, two-year notes and the Series 2018-4 consists of five tranches of floating-rate, three-year notes. However, S&P Global Ratings and Fitch Ratings are only rating the $250 million senior tranche of each series; both expect to assign a triple-A.

The Class A notes carry 25.5% credit enhancement, unchanged from Ally’s recent floorplan issues.

All of the subordinate notes are unrated and are sized as follows: $18.33 million in Class B notes, $13.3 million Class C, $10 million Class D and $41.7 million in Class E notes.

The two new series are the third and fourth deals from the revolving master trust; they follow two prior deals in February and May that totaled $1.75 billion.

The notes are backed by receivables primarily from General Motors and FCA US (Fiat Chrysler) dealers for which Ally provides discount inventory financing (an average of 0.05% below prime) to stock their lots; new vehicles that make up 89.3% of the collateral pool.

Over 65% of the accounts by receivables balance are tied to GM, most of them legacy relationships from Ally’s former standing as a captive finance arm for the automaker when it was known as GMAC. (Detroit-based Ally is a subsidiary of Ally Financial.) The pool has a concentration cap of 35% for potential ties to Chrysler, Dodge and Fiat dealers. (The presale reports did not discuss the potential impact of FCA's plans to establish an in-house captive finance unit.)

The new transactions cover 1,375 dealer accounts with $11.6 billion in total principal receivables and $9.7 billion in eligible principal receivables. Dealer accounts had an average balance of $7 million.

The new notes add to a pipeline of more than $7.5 billion in U.S. franchised deal inventory financing by Ally, GM Financial, Ford Motor Credit, Daimler AG, and BMW.

Some 83.5% of the receivables come from dealers with the top “satisfactory” rating from Ally, which indicates positive cash flow operations, consistent profitability and an adequate credit background. That level has been in decline in recent years, but reverses a slide that saw the level dip to 78% in the prior deal in May. The percentage of dealers meeting the satisfactory standard had been as high in 90% in 2013, and was 86.5% in 2017, according to S&P.

Ally’s dealers are taking longer to turn over their inventories, which indicates potentially lower payments rates since older inventory “can precipitate discounting or production cutbacks,” according to S&P. Only 75% of the inventories are under 120 days, compared to 75.4% last year and a peak of 80.4% in 2013. The percentage of inventory aged 181 to 270 days is up to 8.3% from 6.2% in 2017, and 5.3% in 2016. But inventory over 270 days has been reduced to 6.1% from 7.6% last year.

Monthly payment rates – a key indicator of dealer inventory management – have averaged 36.2% for dealers in Ally’s $30.8 billion managed portfolio this year, up from 33.4% last year and returning to the 36.5% level of 2016.

MPR rates are also used to set amortization triggers should sales deteriorate enough that receivables are inadequate to cover investor note payments. For 2018-3 and 2018-4 pools, an MPR that falls below 25% would force an increase in the Class E note size to boost subordination on the Class A-D notes, or an increase in the reserve account to 2.7%, according to the presale reports.

MPR rates have been stable, averaging 30.7% for 2017 and 33.4% for the first half of 2018. Losses in the portfolio are at 0%.

Barclays, Deutsche Bank and JPMorgan are underwriters on the deal.

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