N.Y. — Last week’s MPR trigger breach by GMAC LLC’s (GMAC) Superior Wholesale Inventory Financing Trust X (SWIFT X) dealer floorplan asset-back security (ABS) transaction in and of itself will not precipitate ratings downgrades, according to Fitch Ratings.
Fitch was notified on Feb. 17, 2009, that GMAC LLC’s SWIFT X dealer floorplan ABS transaction had breached a non-curable, three-month average monthly payment rate (MPR) trigger during the January collection period. The breach of the trigger resulted in the trust entering early amortization.
Though the SWIFT X transaction remains on Rating Watch Negative by Fitch (where it was originally placed on Feb. 6), Fitch does not believe that the breach alone will result in any rating downgrades. Rather, the pace of MPR decline over the coming months, along with loss rates remain among the primary determinants as to whether negative rating actions are necessary.
Declining auto sales at General Motors (GM) reduced the three-month MPR to 22.2 percent in the January collection period, breaching the MPR early amortization trigger set at 22.5 percent. Prior to January, the MPR was 19.7 percent in November and 22.4 percent in December, increasing to 24.7 percent in January. Although MPRs have shown expected weakness through the second half of 2008, the decline experienced during November represented one of the largest month-over-month declines to date.
Fitch’s ‘AAA’ stress scenarios assumes MPRs are initially at the 22.5 percent trigger level, then drop immediately by 45 percent to approximately 12 percent. Fitch’s ‘A’ and ‘BBB’ scenarios result in 40 percent and 35 percent drops, respectively. Fitch’s monitoring will focus on actual MPR levels relative to these stresses.
If MPRs remain at or near current levels, enough collections should accumulate to fully collateralize the outstanding notes within four to five months, which would result in the 2004-A term notes being paid in full on the targeted final payment date of Sept. 15, 2009.
Principal collections from the underlying receivables are now accumulating in each related series cash accumulation account. Once fully funded, the accumulated cash will be applied to pay down the outstanding notes in full for the outstanding series on the targeted final payment date.
Fitch also notes that concerns remain surrounding any negative material corporate events including the bankruptcy potential of GM and GMAC, and/or any major restructuring that may occur prior or during a bankruptcy, and what impact such events may have on SWIFT X’s performance including MPRs and loss rates.
Fitch currently rates three classes of term notes issued from SWIFT X’s series 2004-A (see details below) totaling $2.18 billion.
The series 2004-A term notes have credit enhancement in the form of subordination, and a cash reserve account of 1.50 percent of the initial trust balance available to all classes of Term Notes. The initial reserve account was 0.50 percent, increasing to 2.25 percent, which occurred when the three-month average MPR fell between 25 percent and 22.5 percent in December 2008. Furthermore, the class A, B, and C term notes each have a cash accumulation reserve account of 0.53 percent, 0.06 percent, 0.04 percent, respectively, of the maximum pool balance.
On Feb. 6, 2009, the class A, B and C term notes of the 2004-A series were placed on Rating Watch Negative by Fitch, following growing concerns and uncertainties regarding the near-term prospects of the domestic auto industry and the financial health of General Motors and GMAC. In the accompanying press release, Fitch stated that negative rating actions on these term notes could be triggered by a bankruptcy filing and transaction performance outside of Fitch’s expectations.
SWIFT VIII also breached the MPR early amortization trigger in the January collection period. However, the Series 2004-A, the last series issued, was accumulating principal previously and has fully collateralized the notes and will pay them off in full on the March 15, 2009, the targeted final payment date. SWIFT VIII’s three-month average MPR was 23.6 percent in the January collection period, below the 25 percent trigger level.
SWIFT X has two floating-rate asset-backed revolving notes, 2004-RN1 and 2004-RN2, not rated by Fitch, each with a maximum balance of $1 billion. Through January 2009 the Revolving Notes have a combined outstanding balance of approximately $1.18 billion.
SWIFT X series 2004-A term notes remain on Rating Watch Negative by Fitch as follows:
--$2,000,000,000 class A ‘AAA’;
--$131,148,000 class B ‘A’;
--$54,645,000 class C ‘BBB’.
Fitch does not rate the $185,791,700 certificate.