NextGear Capital is out with its fourth overall securitization in a $328 million pool of inventory floorplan financing for primarily independent auto dealers of used cars.
NextGear Floorplan Master Owner Trust 2016-1 is an ABS of two pools of auto and specialty vehicle loan receivables from dealers using the funds to purchase used cars and trucks from auto auctions that include inventory from other dealers as well as salvage-title cars. One pool covers primarily the wholesale used vehicle purchase financing; the second group is for the acquisition of specialty watercraft, recreational, heavy-duty truck and salvage title vehicles.
The notes from the transaction including floating- and fixed-rate tranches for both Class A and Class B notes, with the split to be determined. The Class A-1 and A-2 notes totaling $300 million have preliminary ‘AAA’ ratings from Standard & Poor’s and DBRS, thanks to a sufficient 18% hard credit enhancement included in the issuance. The Class B-1 and B-2 notes equal $2801 million with a credit enhancement of 10.25% and an ‘A’ rating from the agencies.
NextGear will retain subordinated residual notes totaling $33.4 million, or 9.25% of the collateral pool, which consists of over 17,000 wholesale dealer loan contracts.
DBRS’ presale reports that 86% of the receivables in NextGear’s $3.7 billion managed portfolio are in used cars, with 83% acquired by dealers at auctions. Those vehicles tend to be 60% to 80% of retail used BlackBook values. The wholesale loans average about 58 days outstanding between the auction purchase and the retail sale of that vehicle (or its loan contract) from the dealer lot. NextGear has an average monthly payment rate of 47.46% of loan principal from dealers.
Under the wholesale financing platform, if dealer monthly payment rates over a three month fall to certain levels such 30% or 25% the trust can invoke enhanced credit enhancement triggers or boost the required size of the reserve account to 3.5% of the pool vs. 1%.
NextGear’s portfolio includes legacy receivables from the predecessor Dealer Services Corp. and Manheim Automotive Financial Services, which merged in 2013 to form NextGear as an indirect automotive subsidiary of Cox Enterprises.
