An AB Volvo affiliate is marketing $300 million in bonds secured by receivables of inventory financing provided to dealers of Volvo- and Mack-branded trucking and construction equipment.
Volvo Financial Equipment Master Owner Trust 2018-A is a 2.5-year, revolving securitization of floorplan financing by VFS US LLC for a highly concentrated mix of 160 U.S. dealers, who have $1.22 billion in outstanding principal balances.
The single tranche of Series 2018-A notes in the offering carry 21.75% credit enhancement, and represent only the second floorplan transaction that VFS US LLC has sponsored and serviced through its master trust. The notes carry preliminary triple-A ratings from Fitch Ratings and Moody’s Investors Service, according to presale reports.
The receivables are from dealer payments repaying the wholesale financing of primarily new (94% of the collateral pool) Volvo-manufactured trucks, buses, construction equipment and both marine and industrial engines. Funds advanced to dealers through the floorplan financing are typically paid back upon the purchase of the equipment. Dealers benefit from a manufacturer repurchase agreement on unsold equipment.
VFS has supplied floorplan financing for over 20 years, but
VFS has also been a regular issuer in the esoteric ABS space through eight prior deals
Moody’s is concerned about the new floorplan deal’s concentration in such a small network of dealers, compared to the more “granular” auto-dealer floorplan trusts that involve thousands of dealer obligors (Ford Motor Credit has more than 3,200 franchised Ford-dealer accounts in its portfolio, for example). The top 10 dealers in VFS’ pool are allowed up to 50.5% of the combined note balance, with one dealer alone makes up 10.63% of the collateral principal balance.
But most of the top 20 dealers have high levels of ancillary servicing and parts revenues that make up anywhere from 90% to 104% of the dealership’s fixed operational costs – lessening any potential financial strain on dealers in the event of declining equipment sales. Dealer monthly payment rates have ranged between 10%-30%.
As of March 31, VFS provided floorplan financing to about 60% of Volvo and Mack truck dealers and 91% of Volvo construction equipment dealers. VFS’ dealer interest rates ranges from 1.95%-6.7% for new and used trucks, and 1.7%-6% for construction equipment.
VFS’ portfolio (including equipment-loan originations) totaled $6.3 billion through the first quarter, of which $1.3 billion is wholesale financing. Net losses are minimal – the only losses since 2012 occurred last year, with Volvo recovering of all but $800,000 in $4.8 million in equipment-contract liquidations.
