A revolving pool of dealer floorplan notes will secure the forthcoming $300 million asset-backed securities (ABS) deal from Navistar Financial Dealer Note Master Owner Trust II.
BofA Securities is the structuring lead manager on the Series 2022-1 deal, for which Navistar Financial is the sponsor, servicer and the administrator, according to FitchRatings. The proceeds from the note will finance inventory of dealers franchised by Navistar, or other original equipment manufacturers.
More than 95% of the trust’s dealer notes are secured by new equipment inventory, and sold inventory, with buyers already in place for equipment, comprise a significant concentration of the dealer notes.
The dealers themselves are in solid financial health, which should support the performance of the notes, according to Fitch. Operating income and dealer net worth are at historically high levels, relative to prior years. At any given time in the duration of the transaction, school buses secure 20% to more than 35% of the dealer notes, according to the rating agency. In fact, “NFC has never experienced a bus dealer bankruptcy in its history.”
Fitch expects to assign ‘AAA’ ratings to the $286.4 million class A notes and ‘AA’ to the $13.5 million class B notes.
The trust is also expected to perform well, since monthly payment rates have ranged from 24% to 79%, sitting well above annual averages observed for the recessionary years, Fitch said. During 2021 monthly payment rates averaged 54.3%, mainly driven by supply chain challenges.
This rating driver also speaks to a strong obligor concentration, Fitch said. Top rated ‘A’ and ‘B’ category dealers accounted for 80.3% and 12.4% of the wholesale portfolio, respectively, by the end of March 2022.
While hard credit enhancement had decreased in the pool, as compared with previous ones, Fitch deemed it still adequate to warrant its high ratings. The 2022-1 series features a spread account of 1.5%, which is consistent with most recent transactions, Fitch said. For classes A and B, hard credit enhancement is 22.0& and 18.2%, respectively.
In an industry environment juggling the challenges of supply chain constraints, Fitch says its outlook for the dealer floorplan ABS sector is neutral.
“We expect the impact of the economic of the economic fallout of the Ukraine War on asset performance to be modest,” Fitch said.
