GM Financial markets $888.7m floorplan amid slumping sales

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General Motors Financial is marketing its second dealer floorplan securitization of the year, backed by the inventory financing receivables from a primarily GM franchise dealer base battling slowing sales and overstocked lots.

GM Floorplan Owner Revolving Trust (GFORT), Series 2017-2 is an $888.7 million transaction that is marketing bonds including $750 million in fixed- and floating-rate classes of senior notes. Those Class A-1 and A-2 notes are supported by 27.86% credit enhancement, with the exact split to be determined. They have preliminary AAA ratings from Fitch Ratings and Moody’s Investors Service.

The fixed-rate subordinate tranches include a $51.37 million Class B issue of AA-rated notes; $46.23 million in Class C notes carrying an A rating and a BBB-rated Class D series totaling $41.1 million.

Credit enhancement across the senior and junior notes is unchanged from the GMF trust’s first transaction this year. The Class A notes’ CE consists of a $138.7 million, or 13.5%, overcollateralization level as well as 13.5% subordination and a 0.86% non-declining reserve account.

All of the notes carry a five-year maturity, but are expected to be paid within three years as dealers pay down the inventory as cars are sold. While the notes are secured by the receivables, the cars, trucks and SUVS are the ultimate collateral for the issuance. More than 85% of the vehicles in the pool are new cars.

The portfolio has an expected 30 to 35 month revolving period, during which no principal payments will be paid to noteholders.

In floorplan financing, dealers are extended lines of credit to purchase vehicles they receive from a manufacturer or for wholesale used-car purchases. They pay off the vehicles in full when the cars are sold in the retail channel, usually within 90 days. If the car remains unsold outside of a prescribed window, dealers must pay down the loans on a pre-determined curtailment schedule.

(The dealers have repurchase agreements with General Motors on unsold inventory, as well).

Fitch reports that the financial health of the GM Financial dealer network is stable, with healthy revenues and “solid” profits from a majority of them.

But there has been a sizeable migration of dealerships into GMF’s higher-risk, lower-credit tiers of internal dealer risk ratings for its wholesale portfolio. The percentage of dealers in the higher-rated 'A'/'B' tiers has declined to 60.36% this summer from 69.9% a year ago. Most were downgraded into the ‘C’ tier (which surged to 34.8% of the portfolio from 27.2%), and only a minimal number of dealers still occupy the weakest Class D tier (3.1%).

However, “the overall dealer credit tiering composition has been stable since inception, with the majority of dealers profitable.”

In addition, the monthly payment rates (MPRs) from dealers has declined, with the average MPR of 34.3% down from 39.9% at the mid-point of 2016. That average is from a month-to-month MPR range of 30.5% and 39.8% this year, as GM dealers cope with overloaded inventories and falling sales figures in 2017.

MPRs are a critical ABS performance metric for floorplan deals as well as an investor proxy into tracking individual dealer sales. Overall sales of GM vehicles is down 3.9% on the year, including a steep 20.2% decline in auto sales as consumers flock to SUVs and light-duty trucks industry-wide.

But despite the MPR decline, the payment rates are still well above the trigger levels of between 17.5%-25% that would require the trust to provide additional credit enhancement step-ups or even early amortization of the notes.

The trust’s outstanding balance is $6.3 billion among 764 dealer accounts (up from 652 as of September 2016), or an average of $8.3 million per dealership. That is a higher-than-average figure compared to other peer floorplan securitizations by the trusts for Ally Bank, Ford, Nissan and Hyundai. Over 85% of the GFORT floorplan financing is for new vehicle inventory.

In addition to GM and other franchised dealers, GM Financial also supplies financing to partner AutoNation used-car dealerships, representing 4% of the asset pool.

This is GM Financial trust’s fourth overall dealer floorplan securitization through the GFORT trust since it was formed four years ago following General Motors’ acquisition of Fort Worth, Tex.-based subprime lender AmeriCredit. GM Financial's floorplan division has an 18% dealer penetration rate among GM franchises.

Ally Bank, a unit of Ally Financial that was the original General Motors Acceptance Corp. (GMAC) captive finance arm for GM, still serves a higher number of GM dealers through its floorplan financing arm, with its latest trust issuance culling from a managed portfolio balance of $15.8 billion serving 1,762 dealer accounts (that also includes Chrysler dealers).

Barclays, JPMorgan, Lloyds and RBS were arrangers for the GFORT 2017-2 deal.

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