Concerns Persist, But Dealer Floorplan ABS Perform Adequately, Says Fitch

CHICAGO — Auto dealer floorplan ABS transactions entering early amortization due to manufacturer or finance company bankruptcy are largely performing within expectations, though material concerns remain over valuation declines in a still challenged macro environment, according to Fitch Ratings. Related pressures remain particularly acute for the domestic OEMs with GM and Chrysler continuing to reposition after emergence from bankruptcy.

While underlying asset performance has generally remained within expectations, Fitch believes dealer floorplan ABS performance has benefited materially from direct and indirect support as well as the facilitation of new alliances. The deterioration in the financial profile of the domestic auto manufacturers and challenges of working through significant inventory levels has brought into sharper focus the material connections of manufacturers to their dealers and the dealer's material role in this financing chain.

Observing the relationship between dealers, the manufacturer and the finance company before and during bankruptcy has demonstrated operating and logistical links uncommon in other structured finance asset classes, according to Senior Director Ravi Gupta. Fitch believes that these linkages will make achieving 'AAA' ratings on dealer floorplan ABS associated with manufacturers with weak credit profiles unattainable. "Other asset classes commonly feature more granularity of their pools and direct access to the assets, significantly influencing their ability to achieve the highest rating levels," said Gupta.

Positively, the structural triggers tied to the recent bankruptcy filings of General Motors Corp. and Chrysler LLC have resulted in the Superior Wholesale Inventory Financing Trust (SWIFT) XI and Master Chrysler Financial Owner Trust (MCFOT) transactions entering rapid amortization and paying out monthly collections prior to their scheduled termination dates.

The other remaining transactions continue to revolve in accordance with their transaction documents.

Should monthly payment rates and losses not materially deteriorate from current levels, the SWIFT XI and MCFOT transactions should repay full principal within the next few months. Key potential impacts to performance would include new developments that would infringe on the support provided to the sector, disorderly unwinds of dealers that have been targeted for closure or economic conditions deteriorating further and creating additional constraint on consumer interest in automotive purchasing.

Fitch currently rates five outstanding U.S. auto-related dealer floorplan ABS transactions, all of which are associated with the three U.S. domestic auto manufacturers and are detailed below. Fitch downgraded all transactions on April 14, 2009 and placed each of them on Rating Watch Negative following continued system-wide deterioration in the domestic auto industry and the heightened financial risk of each of the auto manufacturers. Each transaction remains on Rating Watch Negative.