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Dealer stocking securitisation was pioneered in North America during the 1990s but has rarely taken place in Europe. One exception was a sophisticated €850m securitisation of Renault and Nissan dealers’ floor-plans in 2005.
With dealer floor-plan securitisation (DFS), once the assets are sold the dealer repays the lender and can then re-draw on the line of credit. Receivables that are transferred to a trust are from the loans used to finance the stock. Payments to the loans are the cash flows used to pay off the DFS securitisation. A diversified transaction includes various manufacturers selling various products which diversifies the risk and helps to mitigate losses in a given portfolio. The diversified scenario may also involve multi-franchised dealers where the dealers are financing through one source but have franchises with more than one manufacturer.
With memories of inappropriate non-prime lending still raw in the public mind securitisation has not been popular of late. There is, however, no doubting its effectiveness as a fund raiser.
In the US, however, development of DFS, this most innovative of securitisations, although slowed by the recession, has continued apace assisted by the introduction by the Federal Reserve’s Term Asset-Backed Securities Loan Facility (TALF).
On 30 September 2009 Ford Motor Credit Company issued its first public TALF-eligible dealer floor-plan transaction – Ford Credit Floor-plan Master Owner Trust A Series 2009-2. The transaction was upsized to $1.5bn and was a three-year transaction that priced at 155 basis points over one-month LIBOR.
Achieving TALF status was made possible in large part because Moody’s became comfortable with Ford Motor Company’s financial condition and saw some stabilisation in the US automotive industry overall. It was consequently able to assign a triple-A rating to the transaction.
In a Moody’s report released concurrently with its rating of the Ford transaction, the rating agency cited evidence from the General Motors and Chrysler bankruptcies, and how those issuers’ outstanding dealer floor-plan asset-backed securities transactions fared following those bankruptcy filings, as one of the biggest reasons for its change of heart. Additionally, the Ford transaction included Wells Fargo (Aa2) as a back-up servicer.
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