Hyundai Motor is marketing its first offering of the year of bonds backed by dealer inventory financing, according to rating agency reports.
The deal, dubbed Hyundai Floorplan Master Owner Trust, Series 2016-1, will issue $507.4 million of notes backed by lines of credit originated by Hyundai Capital America. This transaction is only the sponsor’s third ever dealer floorplan securitization to issue long-term notes; the previous one closed in closed in May 2013, according to Moody’s Investors Service.
Moody’s and Standard & Poor’s have assigned preliminary ratings to three tranches with an expected maturity of March 2019; two tranches, one fixed-rate and one-floating rate, benefit from initial hard credit enhancement of 21.59% and are rated Aaa/AAA; a third, fixed-rate tranche benefits from 14.18% credit enhancement and is rated Aa3/A.
Auto dealers obtain lines of credit from manufacturers to finance their inventory of vehicles; they draw on it to purchase cars and trucks and use proceeds from vehicles sales to repay the line of credit. Each Hyundai-franchised and Kia-franchised dealer benefits from an agreement with Hyundai Motor America or Kia Motors America in which both manufacturers commit to repurchase unsold new vehicle inventory upon dealer termination. The vehicles must be current model year vehicles that are new, undamaged and unused
Among factors affecting its credit ratings, Moody’s cited a reduction in the number of dealer accounts assigned to the securitization trust. Since the previous transaction was completed, the size of Hyundai’s dealership base has grown to 316 from 241; however, this is still a small number relative to other auto floorplan trusts.
Also, noteholder will not receive any principal for the first 32 to 35 months, subjecting them to the risk that performance of the assets in the trust will deteriorate over that time.
However, Moody’s feels that the credit quality of the auto dealer floorplan receivables and the underlying collateral securing the floorplan loans is “high”; since 2009, when the portfolio reported a net loss of 1%, it has experienced “minimal” net loss. The rating agency attributes this to strong dealer management and high recoveries.