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GM Financial breaks the ice for 2020 dealer floorplan ABS

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General Motors Financial is the first automotive captive-finance lender to sponsor a dealer floorplan securitization for 2020, in a $751.5 million revolving pool of more than 1,200 dealership accounts.

GMF Floorplan Owner Revolving Trust, Series 2020-1 will feature four classes of notes, including a $548.5 million Class A tranche with preliminary triple-A ratings from S&P Global Ratings and Moody’s Investors Service.

The transaction is the first for Fort Worth, Tex.-based GM Financialsince May 2019, and the 12thoverall since GMF debuted the shelf in 2015 after the wholly owned GM affiliate was granted preferred lender status to manufacturer sales incentives and leasing programs through GM dealers.

But GMF has had to organically build its footprint of GM dealerships for its inventory financing program, which has grown from 873 in December 2017 to 1,330 as of June 2020 to give it a penetration rate of 30.3% among GM franchised dealers, according to a GM Financial earnings presentation from July.

(Many GM dealerships have maintained floorplan financing arrangements with former GM captive-finance lender Ally Financial).

Floorplan securitizations slowed this year as dealerships grappled with automotive manufacturing suspensions and falling sales volumes in the midst of the coronavirus pandemic. That resulted in lower monthly payment rates (MPRs) for dealerships across the country this spring as COVID-19 related economic stresses mounted – with GMF’s MPR rate having “declined materially” to 22.6% in April and 32.4% in May.

MPRs are considered a guidepost benchmark by asset-backed investors on how well dealerships are performing sales-wise and turning over inventory, with a declining rate a potential indicator of forthcoming discounting and manufacturer production cutbacks, according to ratings agency reports.

Low MPR rates can trigger early amortization features of a floorplan securitization, but the rebound in June’s MPR rate to 61.8% for GMF (the high-mark for the year) forestalled any concern that a low three-month average MPR rate would potentially force early principal paydowns on existing ABS notes. The average payment rate for 2020 year-to-date is 46%, up from 42.9% in 2019.

According to Moody’s presale report issued Wednesday, COVID-19 remains a substantial risk to the transaction, based on “whether governments can reopen their economies while also safeguarding public health and avoiding a further surge in infections.”

In most floorplan arrangements, a dealer will utilize the account to finance inventory purchases of new vehicles from the factory or for consumer trade-ins of used vehicles. The dealership will typically reimburse the trust for the full amount of the vehicle upon a sale. GMF’s trust benefits from a manufacturer repurchase agreement on unsold vehicles.

As of June, GMF’s average principal balance in the serviced portfolio of dealer floorplan assets was $9.1 billion. GMF has not experienced any net losses from dealership financing.

The new floorplan notes for GMF’s latest series carry the same credit-enhancement levels as prior deals (including 27.87% for the senior Class A notes), and are backed by a pool balance of $5.14 billion (or an average balance of $4.2 million per dealership account).

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