Moody's Investors Service assigned definitive ratings to the notes to be issued by Navistar Financial Dealer Note Master Owner Trust Series 2009-1 or NAVMT 2009-1, which is the first series of dealer floorplan notes to be issued by Navistar Financial Corp. since 2005.
According to a release from the rating agency, the complete rating action is as follows: $300,700,000, Libor plus 1.45%, Class A Asset Backed Notes, rated 'Aaa' and $23,100,000, Libor plus 4.25%, Class B Asset Backed Notes, rated 'Aa2'.
The rating agency stated that the ratings are based on the quality of the underlying dealer
floorplan receivables, the strength of the structure, the experience of Navistar as servicer and Wells Fargo as backup servicer.
The Class A notes for NAVMT 2009-1 are expected to be eligible collateral under the Term ABS
Loan Facility or TALF.
Moody's used two primary analytical methods in evaluating this floorplan deal. The first method evaluates an expected loss estimate for the floorplan collateral and variability around the loss estimate, looking at more stressful environments.
The judgment of a rating committee is used to know the loss estimate's variability at a level consistent with a 'Aaa' rating or a 'Aaa Proxy' for the given trust. After determining an expected loss as well as 'Aaa' Proxy, the rating agency uses an expected loss framework to evaluate the related bond ratings. Within this framework, the ratings on the securities are assigned based on a table that shows the relationship between the notes' probability-weighted expected loss and a Moody's rating.
The second analytical method used is Moody's floorplan loan model. This is based on a joint-default probability analysis of both the manufacturers and dealers. Loss given default is determined by analyzing the collateral at risk net of recoveries. The total collateral at risk upon a joint-default of the manufacturer and dealer is the remaining unpaid floorplan loan balance. The analysis is implemented through a simulation model, which simulates losses in a two-year amortization period following an event of default based on a set of key modeled assumptions including manufacturer bankruptcy scenarios, dealer default rates, recovery rates, payment rates, the impact of macroeconomic activity on manufacturer and dealer default probability, the correlation of default between manufacturer and dealer, and the frequency of diversion of product sale proceeds by the dealership ("sold out of trust").
The rating agency also looks at qualitative factors including the quality of provided data, servicer experience and the dealership credit profile. Combining the qualitative and quantitative analysis, a final rating level is determined.
Loss sensitivities for the NAVMT 2009-1 deal are impacted by changes in assumptions about key model inputs. These inputs include the assumptions regarding manufacturer and dealer default probabilities as well as recovery rates on liquidated inventory. A weakening profile for the
manufacturers and the dealers could put downward pressure on Moody's assumptions about its ratings. Recovery assumptions could also come under pressure. The rating agency said that changes to these assumptions could impact the level of enhancement needed to maintain the ratings originally assigned to the bonds. A weakening loss trend could also affect the ratings for this transaction.
If the rating agency thinks that a weakening loss trend is worsening and will be sustained throughout the life of the offering, the required amount of enhancement needed to support the assigned ratings might change, the rating agency said.
