A European car manufacturer's captive finance company is planning to sell dealer floor plan securities, or bonds collateralized by the future sales of cars parked on dealers' lots. The ice-breaker deal is expected later this month with an €850 million public offering from Renault's RCI Banque which will be lead managed by Citigroup and Société Générale.
Other European auto finance arms are likely to follow suit, as unsecured funding becomes more expensive and they begin to securitize more than just their retail loan portfolios, said Hoesli Labhart, director and co-head of financial institution asset-backed securitization at Citi in London.
Securitization pros at rival banks say they are in discussions with other issuers regarding similar structures and expect the inaugural deal to grease the wheels and increase issuer and rating agency comfort with the format.
The asset class is expected to be a big hit in Europe. "With 70% of European ABS being real-estate related and a large portion of that consumer mortgages, it's great to see something that is not real-estate, and on top of that not consumer," said one London-based investor who is considering the deal. In the U.S., where the asset class was introduced in 1990 and constitutes about 10% of auto ABS, deals tend to be priced in line with or even inside credit cards, due to scarcity value and structural characteristics including quick payment rates on the loans, issuer credit quality and a bullet maturity. The Renault deal fits these parameters and will be sold through a master trust structure in two tranches: a triple-A and a five-year single-A.
The major hurdle in such deals, according to one London-based sellsider, is the quality of the auditing systems and controls in place in an auto manufacturer's distribution network. "The legal aspect isn't the worst part; it's producing the necessary information regarding things like the nature of vehicle sales to dealers," he said, noting consignment sales, where a dealer can put an unsold vehicle back to the manufacturer, make securitization of the assets very difficult. No other public dealer floor plan deals have been mandated yet.
Other auto manufacturer finance arms which have already securitized portfolios of European consumer auto loans and might therefore also be close to executing a dealer floor plan deal include Peugeot and Fiat. Neither Laurent Abensour, head of capital markets at Banque PSA Finance, nor Antonio Picca Piccon, senior v.p. in structured finance at Fiat's finance company, returned calls by press time.
