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Mercedes-Benz marketing annual dealer floorplan ABS

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Mercedes-Benz Financial Services USA (MBFS) is returning to the securitization market for its first transaction of the year finance Daimler AG dealer inventories of new and used vehicles.

MBFS, based in Farmington Hills, Mich., will concurrently issue single-tranche Series 2018-A and 2018-B notes that are backed by a trust pool balance of $3.07 billion across 279 dealer accounts, with an average balance of $11.03 million.

Each series carries preliminary triple- A ratings, according to a presale reports published Monday by Fitch Ratings and Moody’s Investors Service.

The tranche sizes are to be determined for either the two-year 2018-A or the three-year 2018-B bonds, but each will have 16.25% overcollateralization. (Credit enhancement will also include a 0.25% reserve funding account.)

The two previous U.S. floorplan deals from Mercedes-Benz in 2017 and 2016 each totaled $750 million. The lender has sponsored two-tranche deals annually since 2015.

In last year’s deal, Mercedes-Benz apportioned $450 million in notes to the three-year tranche (2017-B) that priced at one-month Libor plus 42 basis points, and $300 million in bonds for the two-year, 2017-A series at a coupon of Libor plus 30 basis points.

Citibank is the lead underwriter for what is MBFS’ 10th overall floorplan securitization, according to Moody’s.

While Daimler AG last week reported a decline in year-over-year U.S. market revenue to €9.1 billion (US$10.86 billion) from €9.4 billion, Moody’s and Fitch credits MBFS with continued strong performance.

The captive-finance company has no net historical losses on its $4.24 billion managed portfolio, serving a stable of financially solid dealerships with strong, long-term performance in monthly payment rates to MBFS’ master trust platform.

The minimum three-month MPR trigger level is 37.5%, which if breached would force a step-up to 18.75% credit enhancement and an accelerated amortization payment schedule from dealers.

That trigger level is a higher threshold than similar U.S. floorplan offerings from Volkswagen, Hyundai, Ally Financial, Ford, GM Financial and Nissan.

One area of mild concern for Moody’s is the risk from a high concentration of large dealership groups financed by MBFS – including nationwide auto retailer AutoNation, which under deal terms can carry up to 11% of the pooled receivables in both series.

The next four-largest dealers have concentrations between 7.5% and 5%.

Twenty percent of the pool is for the financing of used-car inventories, according to presale reports.

Dealers are charged an average rate of 180 basis points over one-month Libor on their accounts.

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