CHICAGO — Fitch Ratings has placed all classes of notes from each of the GMAC-, Ford- and Chrysler-related dealer floorplan asset-backed securities (ABS) on Rating Watch Negative.
The rating actions follow the announcement of dismal auto sales in January. Current sales levels could imply that a larger number of dealerships will face financial difficulties or bankruptcy in numbers greater than anticipated in Fitch’s analysis. Further, January’s report amplifies the concerns and uncertainties regarding the near-term prospects of the U.S. domestic auto manufacturers and their related captive finance companies and confirms their need for significant financial support prior to year-end. Finally, an analysis of trust performance reveals an ongoing decline in monthly payment rates and greater volatility in these rates than ever experienced previously. In particular, this unprecedented set of events creates a risk profile that may not be consistent with Fitch’s current dealer floorplan ABS ratings, particularly at the ‘AAA’ level.
January 2009 new vehicle sales continued to decline at an alarming rate, with General Motors, Ford, and Chrysler each reporting 40 percent or more declines in monthly domestic sales compared to the prior year. These figures suggest a potential annual new vehicle sales level of approximately 10 million vehicles or less in 2009. This is the lowest sales volume experienced by the industry in 27 years.
In addition, a high level of uncertainty remains on the availability, amount and timing of any incremental government bailout funding. A Feb. 17 deadline has been set by Congress for each manufacturer to submit a plan which outlines their strategy for achieving viability, however limited information is available as to the nature of these plans and whether they will receive any positive response from government. Without this support, it is conceivable that one or more of the manufacturers and/or finance companies, may be forced into bankruptcy at the same time.
The increased potential for such an outcome increases the likelihood that rapid and highly disorganized filings may occur, resulting in a large number of franchised dealers defaulting simultaneously and a large number of vehicles being sent to auction in an already severely depressed wholesale vehicle market with little consumer demand. Such a scenario could potentially negatively impact the key performance variables in each ABS transaction beyond Fitch’s previously assumed base and stress case scenarios.
Per Fitch’s existing dealer floorplan ABS criteria, a Chapter 11 bankruptcy filing by the manufacturer is assumed to occur at some point during a transaction’s life. Base case and stress case assumptions to key variables attempt to assess the impact of such a filing. However, as stated in Fitch’s Dec. 23, 2008 press release, a key component of assessing the reasonableness of these assumptions when limited historical empirical data exists is that the result of any filing would be an orderly reorganizing of the company.
An orderly filing would include assumptions that post-filing financing would be available to the manufacturer and/or captive finance company in the short-term, to maintain ongoing operations and ensure continued support for new and used vehicle demand and sales. Ongoing operations of the manufacturer would necessitate certain requirements including the honoring of vehicle warranties, availability of parts and services, and consistent levels of support to the remaining dealer network; all of which would result in continued, albeit severely depressed, new vehicle sales with limited overall decline in wholesale and retail vehicle values. Under this scenario, catastrophic dealer defaults and disorganized and rapid collateral liquidations would likely not occur.
Fitch has been in regular contact with each domestic finance company (GMAC, CF, and FMCC) and has received applicable data from them in order to better understand the potential bankruptcy scenarios, the implications on their respective dealership networks, and how this will affect the performance metrics of dealer floorplan ABS including monthly payment rates, dealer defaults, losses, and recovery rates. Fitch is reviewing this information to determine whether criteria adjustments are necessary.
Further, Fitch is continuing to monitor the evolving status of the domestic auto industry and the potential for any incremental government support. While the below listed transactions are currently performing within expectations, future negative rating actions could be triggered by a bankruptcy filing and early signs that the performance of a transaction is outside of Fitch’s expectations. However, it is possible that the transactions may remain on Rating Watch Negative for an extended period given the ongoing government intervention and evolving credit market issues.
The classes listed below are fixed and floating rate notes issued by Chrysler Financial LLC (CF) (MCFOT), Ford Motor Credit Company (FMCC) (FCFMOT) and GMAC LLC (GMAC) (SWIFT and SMART) secured by loans made by each company to franchised vehicle dealerships to support their purchase and flooring of vehicles manufactured by the related manufacturer. The rating actions affect approximately $12.02 billion in outstanding DF ABS rated by Fitch.
Master Chrysler Financial Owner Trust (MCFOT)(f.k.a DaimlerChrysler Master Owner Trust):
--Series 2006-A term notes rated 'AAA'.
Ford Credit Floorplan Master Owner Trust A (FCFMOT):
--Series 2006-3 class A notes rated 'AAA';
--Series 2006-3 class B notes rated 'A';
--Series 2006-4 class A notes rated 'AAA';
--Series 2006-4 class B notes rated 'A'.
Superior Wholesale Inventory Financing Trust (SWIFT X):
--Series 2004-A class A notes rated 'AAA';
--Series 2004-A class B notes rated 'A';
--Series 2004-A class C notes rated 'BBB';
Superior Wholesale Inventory Financing Trust (SWIFT XI):
--Series 2005-A class A notes rated 'AAA';
--Series 2005-A class B notes rated 'A';
--Series 2005-A class C notes rated 'BBB+';
--Series 2005-A class D notes rated 'BB+';
Superior Wholesale Inventory Financing Trust
--Class A notes rated 'AAA';
--Class B notes rated 'A+';
--Class C notes rated 'BBB+';
--Class D notes rated 'BB+'.
SWIFT Master Auto Receivables Trust (SMART):
--Series 2007-2 class A notes rated 'AAA';
--Series 2007-2 class B notes rated 'A+';
--Series 2007-2 class C notes rated 'BBB+';
--Series 2007-2 class D notes rated 'BB+'.