Published reports that Mitsubishi Motors Corp. is close to receiving an additional $3 billion in fresh capital from its banks and affiliates, its second bail out package in less than a year, had the ABS market buzzing once again about the fate of the automaker's outstanding ABS bonds.
"It appears that the Mitsubishi Group is willing to continue capital contributions to MMC for as long as it takes the company to recover. Continued capital infusions are good for MMCA ABS as they will allow MMC to continue operations and stay out of bankruptcy," wrote Barclays Capital researcher Joe Astorina in response to the headlines.
Furthermore, Astorina noted, although Japan has moved in recent years to let weak companies fail, corporate executives and politicians believe that tradition and employment concerns should be paramount in determining which companies live or die. On that score, MMC has the pedigree of the Mitsubishi Group in its favor, he said.
Mitsubishi's floorplan receivables transaction is the deal most likely to be affected by the fate of the corporate entity, ratings analysts said. The class A notes of the deal in question - MMCA Wholesale Master Owner Trust 2003-2 - are currently under review for a possible downgrade by Moody's Investors Service.
"We have had it under review for a couple of months," said Moody's Senior Vice President Kumar Kanthan. "We are continuing the review as there are still some open questions."
The action was prompted by the continued decline in Mitsubishi sales in the U.S. and the potential effect on the viability of the Mitsubishi dealer base, analysts said in a release. The legal final maturity date on the notes is Oct. 15, 2008.
"At the end of the day, a $3 billion capital infusion is obviously good news. But the questions we have asked are broader. The deal is going to be out there for another 18 months, or so. This is just one fact," Kanthan said.
Several of Mitsubishi's retail loan and lease deals have already suffered downgrades due to the poor performance of the collateral. Fitch Ratings took the most recent negative action in November 2004. Fitch downgraded four classes including one senior class of the MMCA 2001-3 Auto Owner Trust and three subordinate classes of the MMCA 2002-2 Auto Owner Trust transaction. The rating agency attributed the downgrades to higher than expected cumulative gross and net losses.
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