Never a hot sector to begin with, dealer floorplan ABS has gotten even colder this year. Issuance from the asset class is creeping along at a strikingly slow pace, possibly because of stricter investor requirements on some of the bonds, and higher deal execution costs, say some ABS professionals.
Only two deals came to the market so far this year, and both priced within two days of each other in the first week of April. Citigroup Global Markets led a $600 million Textron Financial Floorplan Master Note Trust 2006-1, and on the 144a side, Wachovia Securities led a $100 million deal called Credit Acceptance Auto Dealer Loan Trust 2006-1.
"We don't expect much growth," said one market professional.
The dealer floorplan transactions that came to market did not have an easy time of it, either. In a rare occurrence for these types of deals, Radian and XL Capital both wrapped Credit Acceptance. Apparently, investors were uneasy with the sector's default rates and required more protection on that deal, according to a market professional. The bonds on Credit Acceptance ended up with triple-A ratings, but at 15 basis points over EDSF it priced a bit wide, apparently to satisfy yield-hungry investors.
In the best of times, dealer floorplan ABS generates a moderate amount of issuance. In 2000, the market managed just 12 deals totaling $7.2 billion. During the next three years, the sector turned in some of its best numbers, in terms of volume, producing $9 billion, $12.8 billion and $14.8 billion in 2003, 2004 and 2005, respectively, according to Thomson Financial. This year, the sector is expected to be sluggish.
"It's the overall cost of doing them, and it has a lot to do with GMAC [General Motors Acceptance Corp.] and Ford's [Ford Motor] potential bankruptcies," one market source said.
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