In continuing fallout from the impact of the COVID-19 outbreak, Moody’s Investors Service on Thursday announced it was reviewing possible downgrades for $3.25 billion in U.S. dealer floorplan securitizations sponsored by Nissan Motor Co.’s U.S. captive-finance lender.
Moody’s is reviewing the Aaa ratings on three series of bonds issued by a master trust sponsored by Nissan Motor Acceptance Corp., over concerns of the “recent deterioration of the financial strength” of the Japanese automaker.
The reviews come a week after Moody’s issued a two-notch downgrade to corporate and secured debt ratings of Nissan Motor and several affiliates – including NMAC – due to deepening economic uncertainty arising from the coronavirus pandemic. Nissan Motor and NMAC were downgraded to Baa1 from Baa3, ratings that are still under review for potentially further downgrades.
NMAC provides provides financing for the U.S. network of Nissan-franchised dealers through its Nissan Master Owner Trust Receivables platform. Moody’s is considering a downgrade on the Series 2017-C ($925.95 million), 2019-A ($920.5 million) and 2019-B ($920.25 million) issues from trust.
Floorplan ABS bonds are secured by loan advances and lines of credit that dealers repay as vehicles are sold off dealer lots. The ratings for the three note issues had been recently affirmed by the agency in February.
Charge-offs of any delinquent dealer loans have been at zero for the past decade, and the monthly average payment rate reported by NMAC was 40% as of February 2020. The MPR rate is above the minimum payment levels (starting at 35%) that, if breached, would trigger additional collateral enhancement requirements to cover potential payment shortcomings to investors. (If the MPR falls to 25%, early amortization triggers kick in, as well).
MPRs are a key indicator of dealer inventory management and sales trends followed by ABS investors.
NMAC also sponsors asset-backed bonds secured by consumer auto loans and leases through separately managed platforms that are not part of Thursday's announced downgrade reviews.
Nissan Motor is currently under a review for downgrade with S&P Global Ratings of its corporate and unsecured-debt ratings of BBB+, due to the risk of deteriorating profits expected over the next two years due to the coronavirus impact on sales and possible currency exchange volatility.
