TEXT-Fitch publishes updated global dealer floorplan rating criteria
Jan 22 - Fitch Ratings today published an updated Asset-Backed sector-specific criteria report titled 'Global Rating Criteria for Dealer Floorplan ABS.' This report updates and replaces the prior criteria report with the same name, dated Jan. 25, 2012. There have been no material changes from the previous version, and Fitch expects no impact on existing ratings. The report presents Fitch's analytical approach to rating global dealer floorplan (DFP) ABS and outlines the unique features of these transactions. Additionally, the report details key rating drivers associated with dealer floorplan ABS as detailed below. Key Rating Drivers Dealership Risks: A key rating driver in assessing the magnitude of defaults/bankruptcies resulting from events of bankruptcy of the manufacturer(s) and lender/servicer and from sold-out-of-trust (SOT) events (when products are sold and the proceeds not submitted by the dealer to the lender) or dealer fraud, as well as the determination of the level of dealer resuscitation. The assessment of the dealer-default frequency is conducted by analyzing four systemic risk drivers in each DFP platform. Asset Performance: Fitch's asset analysis addresses the risk of performance variations by analyzing historical metrics, including asset yield, purchase rates, delinquencies/agings, monthly payment rates (MPRs), levels of excess spread, and defaults/losses, and deriving steady state/base case assumptions and stresses to test the impact of deterioration of asset performance on a transaction. Structural Risks: Structural features and asset performance have a significant impact on DFP performance. As such, Fitch uses an internal, proprietary Microsoft Excel-based cash flow model to evaluate transaction structures by stressing various performance assumptions mentioned above. Operational and Servicing Risks: These include the repossession and subsequent collateral/product liquidation process and the effect on asset values and related risks that follow an event of bankruptcy and such subsequent liquidation. Legal Risks: Fitch's legal analysis of the transaction includes a review of the legal structure and the opinions furnished to confirm that the cash flow derived from the assets will not be impaired (either as a result of the bankruptcy or insolvency of the originator or any other transaction party, such as a swap counterparty, or the trustee's lack of a perfected first-priority security interest in the assets) or diminished (as a result of taxation). Counterparty Risks: This portion of the analysis is largely qualitative and includes a review of the utility's servicing operations. Additionally, the review of other counterparty-related issues is completed, such as commingling of remittance collections and segregation of bank accounts, consistent with Fitch's counterparty criteria for structured finance transactions. Economic Risks: The economic environment can have a material impact on global DFP ABS. As such, Fitch takes into consideration the strength of the economy, as well as future expectations. Additional information is available at 'www.fitchratings.com' Applicable Criteria and Related Research: Global Rating Criteria for Dealer Floorplan ABS
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