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
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
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