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Ally to issue $1B of bonds backed by dealer inventory financing

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Ally Bank is marketing its first inventory financing securitization since June 2017, according to rating agency presale reports.

Investors in the $1 billion Ally Master Owner Trust Series 2018-1 will have to weigh a deterioration in the credit of many of the primarily General Motors (69%) and FCA US (Chrysler) (23%) branded dealerships in the sponsor's $31.6 billion managed portfolio since its previous deal, completed in June 2017.

The percentage of dealers in the highest (of four) internal risk-rating tier in 2017 fell to 81% of the managed portfolio from 92% in 2016. Dealers in the second-highest tier make up 14.4% of the receivables, up from 12.2%.

That deterioration coincided with a backlog of unsold inventories of GM passenger vehicles at many dealer lots, as car buyers lost interest in sedans and coupes in favor of trucks and sport-utility vehicles. The backlog also contributed to declining monthly payment rates from dealers on their floorplan lines of credit with Ally.

The MPR rate on the managed portfolio sunk to a 2017 monthly average of 33.4%, down from 36.5% in 2016 and 38.6% in 2015. Ally was already trailing the MPRs of peer floorplan issuers, says Moody’s.

MPR is a key ABS performance measure of floorplan note performance, providing the percentage of outstanding receivables that dealers pay from floorplan-financed vehicles sold in the retail channel. The trust is usually paid off in full by the dealer after a vehicle is sold, so the rate provides insight into a client dealer’s ability to manage inventory flow.

The rate must remain above a three-month average of 25% in the transaction to avoid triggers that would require additional credit enhancement to the notes through a higher reserve fund requirement.

The MPR for dealer accounts already in the master floorplan trust last year was only 30.7%, in a range of monthly rates that bottomed out at 27%, according to S&P.

Ally Master Owner Trust Series 2018-1 will issue two senior term tranches, one fixed-rate and one floating rate, totaling $750 million. Both benefit from 25.5% credit enhancement, up slightly up from the 25.3% for the comparable tranches of the June transaction. The notes carry triple-A ratings from both Moody’s and S&P.

The capital stack also includes four unrated subordinate tranches of notes totaling $250 million.

The 2018-1 series, the 30th overall floorplan securitization for Ally, shows dealers carrying an average $7.06 million balance with Ally’s program and total receivables of $12.4 billion.

There is also a higher number of used vehicles financed through floorplan activity by serviced dealers: In January, 12.3% of the inventory was used, compared with 10.7% a year prior.

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