Completing in September its first floorplan ABS deal for 2020, GM Financial (GMF) is approaching the market again, this time with a $924.9 million deal that carries an identical structure and credit enhancement to the earlier transaction.
The deal’s Class A tranche of $675.2 million carries initial hard credit enhancement of 27.9%, followed by a $46.2 million Class B piece with 22.9% enhancement, a $41.6 million portion with 18.4% enhancement, and a $37 million portion with 14.45 enhancement. The transaction is overcollateralized by $124.9 million.
In the September transaction, according to Finsight, the Class A portion priced at swaps plus 45 basis points, for a coupon of 0.68%; the B Class bonds priced at swaps plus 80 basis points, for a coupon of 1.03%; and the C Class bonds priced at swaps plus 125 basis points for a coupon of 1.48%.
The first credit challenge addressed by Moody’s Investors Service in an Oct. 15 presale report is the potential for the Covid-19 pandemic to negatively impact pool performance.
“Specifically, for floorplan ABS, failure of an OEM (original equipment manufacturer) can negatively impact consumer demand for the vehicles, lead to reduced recovery proceeds upon liquidation and negatively impact the dealerships financial health, causing a deterioration in performance of the floorplan assets,” Moody’s says.
Moody’s also notes that while its dealership base has continued to grow since GMF’s last three sponsored floor plan transactions, including September’s, increasing active dealer accounts as well as GMF’s penetration rate, the latter is lower than its peers.
In addition, Moody’s says, dealers in the trust pay a floating base rate that may fall, or GMF may change the payment terms, an combined with a substantial representation of fixed-rate liabilities of the trust, the excess spread may lessen or even become negative. For such a negative excess spread to occur, however, there would have to be a succession of unlikely events.
“These include the base rate falling below current historical lows, GMF pricing floorplan loans without considering its funding cost, and a large reduction in overcollateralization,” Moody’s says.
On the plus side, Moody’s says, the credit quality of the auto-dealer floorplan receivables and the underlying collateral securing the floorplan loans is high, and General Motors commits to repurchase unsold new vehicle inventory. In addition, the deal’s Class A note enhancements include 13.50% subordinated notes, overcollateralization of 13.50%, a non-declining reserve fund of 0.86% of the initial pool balance, and excess spread.
