Textron Financial Corp. returned to the ABS market last week for the first time in three and a half years to a cool reception as its scheduled $1 billion private dealer floorplan deal was downsized to $750 million and saw its spreads widened at the last minute. The Banc of America Securities led deal, priced its three-year senior tranche at 12 basis points over one-month Libor last Wednesday, three basis points outside of talk set in the nine basis point area over Libor. The single-A rated subordinated class, meanwhile, priced inside of expectations at 32 basis points over Libor, versus talk in the mid 30 basis point area over Libor.
The triple-A rated 2.96-year A class, originally slated to be $957 million, was decreased to $718 million and the single-A rated B tranche, originally intended to be $43 million, was cut to $32 million.
In this current tight spread environment, where upsizings are a routine occurrence in many on-the-run sectors, the downsizing, in conjunction with spread widening, was a rarity. The Ford Motor Credit Co. series 2005-B auto loan ABS that priced in April was delayed for a weekend prior to negative earnings news from the issuer (see ASR 4/18/05) and AIG Credit experienced a negative reaction to its series 2002-1 insurance premium ABS - pricing only after spread widening and a shortening of the deal's tenor - due to the fallout over AIG unit Lexington Insurance Co.'s involvement in the failed Hollywood Funding film receivables-backed transaction the year before.
Demand was reportedly low for the transaction due to the fact that Textron had never before issued wholesale dealer floorplan ABS, as well as the manufactured housing related receivables in the pool, according to investors who purchased the offering. Additionally, Textron had not issued ABS in any asset class since November 2001, when it sold $375 million of corporate aircraft lease-backed paper via Deutsche Bank Securities - a deal that was initially slated to price the morning of Sept. 11, 2001.
"Tiering is returning to the market," a buysider said. The high level of MH in the pool...That's a hot-button issue right now."
The next highest receivables concentration in the pool is lawn and garden equipment at 16.2% of the pool (capped at 20%) and power sports equipment at 13.6% (capped at 30%).
The deal is backed by loans to 14,000 dealers of various types of receivables ranging from marine and power sports equipment to pools and spas, from a wide array of manufacturers. But the relatively high MH exposure - 18.1% of the portfolio as of March 31 - reportedly turned investors off. Total MH exposure is capped at 20%, according to a presale report from Moody's Investors Service.
That level of diversity is unusual in the floorplan sector, in which issuers are usually exposed to one manufacturer. "Textron Financial's major advantage is its diverse base of manufacturers and nationwide dealers across a variety of product lines as well as Textron Financial's capability in marketing, underwriting and monitoring," added the Moody's presale report.
Textron, a Providence, R.I.-based commercial finance company, was expected to come right back to the market with an equipment lease deal early in 2002, but that deal never materialized.
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