For the second time this year, an outstanding ABS transaction has triggered an early amortization. While news broke earlier this month that a Conseco Finance private label credit card transaction was triggered by the bankruptcy of the seller/servicer, few predicted the dealer floorplan ABS from Mitsubishi Motor Credit would pay down early as well.
Triggered by a sharp decline in the payment rate in December, rather than the credit event that triggered CPLMT 2001-A, MMCA Wholesale Master Owner Trust 2001-1 is paying down early due to an increase in inventories last year that sent the three-month payment rate below 27.5%. Mitsubishi dealer inventories peaked at 72,750 units in December, versus an average in the mid-50,000 unit area on a historical basis, sources said.
The December payment rate for the trust was a meager 22.8%, versus industry averages north of 40% for floorplan loans. That pulled the three-month average down to 26.8%, triggering the early amortization. Unlike most captive finance companies, Mitsubishi calculates its payment rate at month-end, instead of at the start of the month, although it is unclear to what extent this contributed to the early payout.
Researchers at Lehman Brothers, who issued a report following the event, note that since this was not caused by a credit issue there is little need for investors to worry. Because this deal was structured with a "fast-pay" trigger, Lehman Brothers estimates that this will pay out in full in three to four months. Ironically, the "fast pay" trigger - included to speed principal payments for credit-triggered early payouts - is based on the payment rate, therefore making principal collections slower than if the trust had tripped a credit-related trigger.
The private Rule 144A deal was nearing the end of its life and, due to its private status, there was no word if MMCAM 2001-1 had traded prior to tripping its trigger. The floating-rate transaction, with a three-year average life at pricing, paid a coupon of one-month Libor plus 21 basis points.
Priced in early June 2001, the trust had never posted a loss, Lehman noted, and had higher than average 18% credit support. Despite the early payout, a source at the company confirmed plans to issue a wholesale dealer floorplan loan-backed ABS sometime this summer - when 2001-1 was scheduled to officially pay down.