01/22/2010

TALF Expiration Triggering Floorplan Rush

Dealer-floorplan lenders are preparing an onslaught of securitizations.

The offerings are expected to hit the market in two big batches, one in the first week of February and the other in early March, in order to qualify for the two final monthly rounds of buyer financing available through the Federal Reserve's Term Asset-Backed Securities Loan Facility.

TALF's next funding rounds go out Feb. 5 and March 4.

Most of the upcoming deals would be backed by loans that help car dealers finance their inventories. Ford, which is typically among the most prolific issuers of such securities, is expected to be behind at least two of the transactions. BMW and Hyundai are also preparing offerings, as is General Motors affiliate GMAC.

There's speculation that Chrysler Financial is interested as well, although the source of its receivables remains unclear. When affiliate Chrysler entered a government-brokered bankruptcy arrangement last April, all of its dealers agreed to shift their floorplan financing to GMAC. But the still-solvent Chrysler Financial continued to hold a loan inventory that it might now hope to securitize. Or it could be trying to raise money to revive its floorplan business.

Outside auto-related issues, GE Capital appears to be lining up a deal. Most of its floorplan securitizations have been backed by loans to dealers of recreational vehicles.

Why the urgency to get in on TALF's final rounds? With the auto industry on unsteady ground, investors are reluctant to take on exposure to dealer loans - and the program's financing terms offer them a way to shift some of that risk to the Fed.

Indeed, spreads on non-TALF floorplan bonds would likely prove unaffordable for issuers at this point. That differs from most other asset classes, where months of improving market conditions have helped non-qualifying transactions trade at yields roughly equivalent to those on qualifying ones. The upshot: The next two TALF rounds are likely to be dominated by floorplan securities.

Once TALF expires, it's possible that the supply of floorplan-loan securitizations will dry up. And it remains to be seen how the planned issues will fit into the overall funding strategies of Ford and GMAC, which indicated late last year that they would boost their production of auto-loan and floorplan bonds in 2010.

There's a chance some issuers will turn to commercial-paper conduits for funding, although operators of those vehicles are also hesitant to take on the underlying loans.

Nine term securitizations of dealer-floorplan credits totaling $5 billion were sold in the U.S. in 2009, according to Asset-Backed Alert's ABS Database. All but one, a $500 million issue from Ford in June, were eligible for TALF financing. However, the overall production of those issues was stymied by difficulties issuers faced in earning top grades for their bonds - a necessity for TALF eligibility.

Only one floorplan issue has priced so far in 2010, also from Ford. That Jan. 6 issue, which met TALF conditions, included a $1.2 billion slice of triple-A-rated 3-year bonds that priced at 165 bp over Libor. It was rounded out by double-A and single-A classes retained by the automaker.

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