Despite troubles in the auto sector, dealer floorplan ABS are gaining ground.
John McElravey, a senior analyst at Wells Fargo Securities, said that his outlook for floorplan ABS in 2010 is currently pegged at $10 billion, although the volume in the asset class might go over this amount given the number of deals from the sector that have come to market thus far.
“The market could end up seeing more of these deals since bank revolving lines and ABCP conduits that have traditionally helped these companies with their financing needs are now more restricted,” McElravey pointed out. “With financial institutions having to put assets back on their balance sheets, funding for these deals might end up in the term market.”
He also noted that typically the reporting has not been as good in the past compared with other sectors. This might change as issuers become more dependent on the term ABS market. ”The idea that any of the large automobile makers will go bankrupt has never been severe for these transactions, and was treated as a low probability event,” McElravey said. “Corporate credit risk was relatively limited on these pools.”
However, with the General Motors and Chrysler bankruptcies, he said that investors would want to see increased information on what losses will be on floorplan pools since there are more issues surrounding the financial health of the auto dealerships.
The Pipeline
The pipeline of auto floorplan transactions is clearly growing. Just this week Nissan Motor Acceptance Corp. came to market with its $750 million dealer floorplan offering. Navistar Financial Corp. also has a $200 million floorplan offering led by Bank of America and Scotia Capital.
Meanwhile, Ally Bank is also in the market with a $929.5 million TALF-eligible autofloor plan ABS, Ally Master Owner Trust 2010-1. The deal is led by Barclays Capital, Deutsche Bank Securities and Morgan Stanley.
Additionally, the January 2010 TALF subscription period, only Ford Motor Credit Co.’s floorplan deal was included. The deal was even upsized to nearly $1.5 billion from roughly $590 million because of strong demand.
Another floorplan deal came down the pike in January — Morgan Stanley Resecuritization Trust 2010-F. The deal’s certificates were backed by Ford Credit Floorplan Master Owner Trust A, Series 2006-4. Market sources said that this transaction was somewhat unique in that it used the resecuritization structure typically used in RMBS and CLO deals to raise the credit enhancement levels for a portion of the Ford deal and opened it up to triple-A buyers that would not have had access to the collateral otherwise.
Aside from the obvious deal volume in the sector, both Moody’s Investors Service and Fitch Ratings have also made revisions to their existing criteria to put their arms around the manufacturer’s risk as it relates to the dealership networks.
Sources said that analysts at these agencies might be seeing a notable number of deals in the pipeline to prompt these criteria changes.
