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Nissan, NextGear tap ABS market to finance dealer floorplans

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Nissan Motor Acceptance Corp. is tapping the securitization market for up to $1 billion to finance lines of credit for auto dealerships.

This time, it's offering slightly less investor protection on the single tranche of securities to be issued, according to S&P Global Ratings.

Nissan Master Owner Trust 2019-A will issue Class A three-year floating-rate notes rated AAA by Fitch Ratings; depending on demand, it will be sized at between $750 million and $1 billion. The notes benefit from 18.91% credit enhancement, down 50 basis points from 19.41% for Nissan’s four prior dealer floorplan securitizations.

Bank of America is the lead underwriter.

Nissan appears to be benefiting from the stable performance of notes issued from the master trust over the past several years, as well as continued strong demand for securities backed by all kids of auto-related assets.

The credit enhancement consists of 18.5% overcollateralization, which is down 50 basis points from the prior deals. Similar to prior series, however, the required overcollateralization will "step up" should the three-month average monthly payment rate fall below certain thresholds: If the MPR falls below 35%, OC will be required to increase to 21% of the collateral, and if it falls below 30%, OC will step up to 23.5%. However, these trigger levels are also 50 basis points lower than those of the prior deals

Other credit enhancement consists of a reserve account to be initially funded at 0.41% and excess spread, or the difference between interest earned on the collateral and paid out on the notes, which historically averaging approximately 1.48% from 2005 and 2019.

The collateral will revolve over the life of the transactions as dealers draw down on lines to purchase vehicles and repay them when vehicles are sold. In its presale report, Fitch noted that monthly payment rates for the master trust have remained fairly stable since the prior issuance, in 2018, and agings have notably improved.

However, the portfolio is subject to concentration limits designed to limit the risk of a significant shift in credit quality. The top dealer (currently AutoNation) cannot account for more than 10% of the total; there’s also a limit of 4% for the second-largest dealer, 3.5% for the third largest, 3.25% for the fourth largest and 2.5% for the fifth largest. All remaining dealers are subject to a 2% limit.

NMAC has regularly accessed the securitization market to fund its DFP receivables since 2003. At this time, the outstanding NMOTR transactions are 2016-A, 2017-A, 2017-B and 2017-C.

NextGear Capital

NextGear Capital, a Cox Enterprises subsidiary, is sponsoring its tenth series of master-trust notes backed by receivables from its floorplan financing for mostly used-vehicle inventories of independent dealers.

The $481.9 million NextGear Floorplan Master Owner Trust Series (NFMOT) 2019-1 issue will carry two pools of assets: a primary group of receivables of passenger vehicles and light duty trucks sold by auto dealers, and a smaller grouping of receivables from dealer accounts for recreational vehicle, heavy-duty trucks, rental and salvage vehicles, as well as motorcycles and boats.

The pools will have a 30- to 35-month revolving period.

The two pools secure $400 million in fixed- and floating-rate Class A notes that have preliminary triple-A ratings from Moody’s Investors Service and S&P Global Ratings. A $37.35 million Class B fixed-rate tranche is single-A rated by both agencies. Both bonds tranches have five-year legal maturities but are expected to be paid down in three years.

The notes are supported from initial credit enhancement of 18%, which includes subordination of a $44.58 million residual note balance making up 9.25% of the pool balance.

The $4.4 billion pool of receivables involves 18,759 accounts with an average balance of $236,406, paying a weighted average rate of 8.58%. Approximately 95% of the vehicles in the pool are used.

NextGear caters to small, nonfranchised dealerships, so its pool has more financially weak dealers more at risk of defaults and losses than in a floorplan backed by an automaker’s captive finance firm, according to Moody’s.

There are also greater tail-end risk of defaults from the inclusion of nonstandard vehicles assets like RVs and long-haul semi trucks, which require longer-term financing with a slower rate of repayment, Moody’s report stated.

NextGear’s deal benefits, however, since it is not tied to the financial performance and potential bankruptcy of an auto manufacturer, considered one of the key factors in rating securitized inventories of franchised dealers by captive-finance lenders.

Monthly payment rates by the dealers, considered a prime indicator of how well dealerships manage inventory turnover, averaged 47.1% during 2018, well above the 30% trigger level that would require added enhancement, or the 25% rate for early amortization.

The capital stack, credit enhancement levels and concentration limits are unchanged from NextGear’s previous issuance (2018-2). S&P estimates losses at 2.55% of the original receivables of both combined asset groups on the 2019-1 series, a similar projected rate for the 2018-2 transaction.

Moody’s published a projected 18% high-stress model loss rate, unchanged from its expectations of each NFMOT series rated since 2016.

On Friday, S&P affirmed ratings on 19 outstanding series of Class A and Class B notes from six prior NextGear trust issues, with loss and dealer repayment rates performing in line with S&P’s initial expectations.

Citigroup, MUFG and SunTrust are underwriters on the deal.

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