Presale:
BMW Floorplan Master Owner Trust
(Series 2015-1)
Primary Credit Analyst:
Carl J Neff, CFA, New York (1) 212-438-2556; [email protected]
Secondary Contact:
James F Traynor, New York (1) 212-438-2627; [email protected]
Table Of Contents
$800 Million Floating-Rate Vehicle Loan-Backed Notes Series 2015-1
Rationale
Transaction Overview
Changes From The Series 2012-1 Transaction
BMW AG
BMW Financial Services
Legal Structure
Credit Support
Structural Overview And Payment Priority
Collateral Overview And Master Trust Statistics
Collateral Historical Performance
Cash Flow Modeling Assumptions
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Table Of Contents (cont.)
Sensitivity Analysis
Related Criteria And Research
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Presale:
BMW Floorplan Master Owner Trust (Series
2015-1)
$800 Million Floating-Rate Vehicle Loan-Backed Notes Series 2015-1
This presale report is based on information as ofJuly 13, 2015. The ratings shown are preliminary. This report does not constitute a
recommendation to buy, hold, or sell securities. Subsequent information may result in the assignment of final ratings that differ from the
preliminary ratings.
Preliminary Rating As Of July 13, 2015
Class
Preliminary rating(i)
A
AAA (sf)
B
NR
Amount (mil. $) Interest rate
800.000 One-month LIBOR plus a margin to be
determined.
33.940 N/A.
Credit support (% of collateral
amount)
16.52
12.97
(i)The rating is preliminary and subject to change at any time. NR--Not rated. NA--Not applicable.
Profile
Expected closing date
July 22, 2015.
Scheduled payment date
July 16, 2018.
Stated final maturity date
July 15, 2020.
Interest payment date
The 15th of each month, beginning Aug. 17, 2015.
Collateral
Receivables from designated revolving floorplan financing agreements between BMW Financial Services N.A.
LLC and BMW dealers. The financing agreements were established to finance the dealers' inventory of new
and used automobiles and light trucks.
Servicer/sponsor
BMW Financial Services N.A. LLC.
Transferor
BMW FS Receivables Corp.
Indenture trustee
Citibank N.A.
Owner trustee
U.S. Bank Trust N.A.
Delaware trustee
U.S. Bank Trust N.A.
Joint bookrunners (underwriters) Barclays Capital Inc. and Citigroup Global Markets Inc.
Rationale
The preliminary 'AAA (sf)' rating assigned to BMW Floorplan Master Owner Trust's (the trust's) class A floating-rate
vehicle loan-backed notes series 2015-1 reflects:
• Our view that the 16.52% hard credit support (expressed as a percentage of the collateral amount) for the class A
notes is sufficient to withstand the default-to-liquidation rate stresses and loss given default rate stresses that we
apply in scenarios commensurate with the assigned preliminary 'AAA (sf)' rating. Our default-to-liquidation rate
starts at 45.1% in month one and rises to 67.7% by month six. Our loss given default rate starts at 29.5% in month
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one and rises to 39.3% by month six.
• The corporate credit rating (CCR) on the primary manufacturer, BMW AG (A+/Stable/A-1).
• The 45.0% three-month principal payment rate trigger, which, when breached, causes a subordination step-up
period whereby the transaction's available subordinated amount will increase to 15.0% from 12.75% of the collateral
amount, or, if sufficient credit enhancement is not available, an early amortization event will occur.
• The 36.0% three-month principal payment rate trigger, which, when breached, causes an early amortization event to
occur.
• Our view of the above-average financial strength of the dealers that have financing agreements designated to the
trust (the underlying obligors of the floorplan loans); BMW's leading position as a global premium automotive
manufacturer, with strong brands; BMW's strong inventory management practices; and the above-average quality of
the vehicles.
• Large dealer concentrations, mitigated by the multi-branded nature of the largest dealers groups.
• Our expectation that under a moderate ('BBB') stress scenario, all else being equal, our 'AAA (sf)' rating on the class
A notes will remain within one rating category of the assigned rating in the next 12 months, based on our credit
stability criteria (see "Methodology: Credit Stability Criteria," published May 3, 2010).
• BMW Financial Services N.A. LLC's servicing experience and our opinion of the quality and consistency of its
origination, dealer management and monitoring, and collateral auditing practices.
• Our expectation that timely interest and ultimate principal will be paid by the final maturity date, July 15, 2020,
based on stressed cash flow modeling scenarios, using assumptions commensurate with the assigned preliminary
rating.
• The transaction's underlying payment structure, legal structure, and cash flow mechanics.
Transaction Overview
The collateral consists of receivables secured by vehicles from designated revolving floorplan financing agreements
between BMW Financial Services N.A. LLC (BMW Financial Services) and primarily BMW dealers. Each receivable is
an obligation in which the dealer agrees to repay the loan amount that it incurred when purchasing a vehicle for its
inventory. The related vehicle secures the receivable. The dealer generally repays the related receivables when it sells
the underlying vehicle. A dealer's inventory may include new and used automobiles, light trucks, and motorcycles.
The trust is a master owner trust that issues notes through discrete series. The series 2015-1 issuance will contain one
publicly rated note class A and one unrated class B. The interest rate on the class A notes will be floating based on
one-month LIBOR, with a margin that will be determined on the pricing date. The transaction is scheduled to pay
principal to the class A noteholders on the expected final payment date. Standard & Poor's rating, however, addresses
the payment of principal by the stated final maturity date.
Changes From The Series 2012-1 Transaction
The structural and credit enhancement changes from the series 2012-1 transaction include the following:
• Total initial hard enhancement for class A decreased to 16.52% (as a percentage of the collateral amount) from
19.26% for series 2012-1.
• Upon a reduction in the three-month average payment rate below 45%, the required hard enhancement will be
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18.68% (as a percentage of the collateral amount) for series 2015-1, down from 21.41% for series 2012-1.
• The concentration limit for receivables generated by the Penske Automotive Group Inc. (BB/Stable/--) dealership
group increased to 14.0% from 12.0%.
• The concentration limit for receivables generated by the AutoNation Inc. (BBB-/Stable/--) dealership group
increased to 10.0% from 8.5%.
• The concentration limit for receivables generated by the fourth-largest dealer group remains at 4%, although that
dealer may now be a dealership other than Irvine Eurocars LLC.
There have been no material changes in collateral characteristics since the previous transaction. The payment rate has
trended downwards but has generally remained above 50%, and losses have remained at 0%.
BMW AG
The primary manufacturer of the vehicles securing receivables sold to the trust are manufactured by BMW AG. BMW
AG and the other components of the BMW Group manufacture and distribute high-performance luxury passenger cars,
motorcycles, and light trucks. The company benefits from sizable market shares of the North American luxury vehicle
segment. Its brands include BMW, MINI, and Rolls-Royce.
Manufacturer-related risks
The obligors of a non-diversified auto dealer floorplan (ADFP) pool are predominantly franchised dealers, and, as such,
we view their financial health as being largely dependent on the financial health of the related manufacturer, which is
BMW AG in this transaction. Accordingly, we believe a manufacturer bankruptcy--an event risk in non-diversified
ADFP transactions--could decrease the manufacturer's support, such as sales incentives and other payments, to the
dealer. Under this stressed scenario, the related dealer may be left with a relatively large supply of vehicles in
inventory from a bankrupt manufacturer that is not providing sales support. Therefore, we view the corporate credit
rating on BMW AG as a differentiating factor affecting the credit quality of floorplan loans sold to the trust.
BMW Financial Services
BMW Financial Services, a wholly owned subsidiary of BMW of North America LLC, is the servicer for the trust. BMW
Financial Services is primarily engaged in providing a full range of automotive-related financial services to BMW
dealerships in the U.S., including floorplan financing to dealers. BMW Financial Services is a significant wholesale
financing source for the BMW dealers.
BMW Financial Services will service the receivables according to the customary policies and procedures that it uses in
servicing dealer floorplan receivables for its own portfolio.
BMW Financial Services establishes a base inventory guideline to provide adequate floorplan financing for the dealers'
normal vehicle sales. Generally, BMW Financial Services assigns credit lines for new and used vehicles to be an
amount sufficient to finance a 90-day supply of sales. These credit lines are monitored daily, and adjustments are made
upon appropriate credit approval or disapproval.
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Servicing overview
In addition to a typical servicing and collection function, inventory monitoring is important for floorplan transactions
due to the assorted parties involved, the high turnover of the receivables, and the high-ticket collateral securing the
receivables. BMW Financial Services has contracted with an outside vendor, DataScan Field Services LLC, to conduct
audits of dealers with vehicle inventories that are financed through BMW Financial Services' floorplan arrangements.
The standard audit frequency is monthly, and the timing of the audits varies, with no advance notice given to the
dealer. The same auditor may not perform more than three consecutive audits at the same dealer.
If a servicing default occurs, Citibank N.A., the indenture trustee, will appoint a successor servicer. If no successor
servicer is appointed and accepted by the time the servicer ceases to act as the servicer, then the indenture trustee is
required to perform the servicing functions under the sale and servicing agreement.
As part of our risk assessment, we considered BMW Financial Services' servicing experience and its origination,
account management, and collateral auditing practices. We also considered the fact that we do not rate BMW
Financial Services. Nevertheless, in our opinion, the risks associated with a servicing transfer, which we assume is
more likely to occur when a servicer has a speculative-grade rating or is unrated, are mitigated by the strength of the
program's dealer base, which is partly based on the manufacturer's financial strength. Accordingly, the preliminary
'AAA (sf)' rating assigned to the class A notes considers our corporate credit rating on BMW AG. Specifically, changes
to our rating on BMW AG could lead to changes to the rating assigned to the notes, to the extent that the servicing
transfer risk is not mitigated through formal back-up servicer agreements or other arrangements.
The servicer will deposit all interest and principal collections into a collection account within two business days after
the processing date of those receivables. However, if certain provisions in the transaction documents are met,
including if the short-term unsecured debt rating on BMW US Capital LLC's commercial paper is at least 'A-1' or the
rating agency condition is satisfied, the servicer may make a single deposit of the collections into a collection account
on the business day before the payment date.
Legal Structure
BMW Financial Services, the originator, will sell and transfer all of its right, title, and interest in and to all of the
receivables, as well as the collateral security relating to the financing agreements, to BMW FS Receivables Corp., the
transferor. BMW FS Receivables Corp., a bankruptcy-remote, special-purpose entity, will grant a perfected security
interest in the receivables and the collateral security to the trust, which will, in turn, grant a perfected security interest
to the indenture trustee on the noteholders' behalf.
Credit Support
According to the transaction documents, the credit support for the series 2015-1 notes is structured as follows:
• The available subordinated amount will equal 12.75% of the collateral amount.
• The unrated class B notes will equal 3.55% of the collateral amount.
• The reserve fund required amount for any payment date will equal approximately 0.22% of the collateral amount.
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Both the required available subordinated amount and the reserve fund required amount will become a fixed amount at
the end of the revolving period. An early amortization event will occur if the available subordinated amount is less than
the required subordinated amount.
Available subordinated amount and subordination step-up period overview
During the subordination step-up period, the transaction's required available subordination amount will increase to
15.00% from 12.75% of the collateral amount if the three-month average principal payment rate is less than 45.0%. An
early amortization event will occur if the available subordinated amount is less than the required subordinated amount.
The series 2015-1 transaction structure also incorporates an incremental subordination feature. If the dealer or used
vehicle concentrations exceed the concentration limits established in the transaction documents (see the
"Concentration limits" section below for more information) or the receivables become ineligible, the required available
subordinated amount level will increase by an amount equal to the excess over the concentration amounts.
Reserve account overview
The amounts held in the reserve fund will be available to cover any shortfalls in the monthly interest, the monthly
servicing fee, and any defaults. However, during any early amortization period, funds will not be withdrawn from the
reserve account to make distributions to cover defaults to the extent that, after giving effect to the withdrawal, the
amount on deposit in the reserve account will be less than $1 million. On the stated final maturity date, the funds in the
reserve fund will be available to pay the notes' outstanding principal amount.
Structural Overview And Payment Priority
Allocations overview
The series 2015-1 transaction has three distinct allocation periods: revolving, accumulation, and early amortization.
The revolving period will be in effect from the closing date until the earlier of the accumulation period start date or the
business day immediately preceding an early amortization event.
For all three periods, the interest collections (interest, fees, investment earnings, and recoveries) will be allocated to
the series 2015-1 notes based on the floating allocation percentage, or the series 2015-1 notes' proportional share of
the trust's receivables.
During the revolving period, principal collections will be allocated to the series 2015-1 notes based on the floating
investor percentage. During the controlled accumulation and early amortization periods, the series 2015-1 notes'
allocation of the trust's principal collections will be based on the fixed investor percentage, which is equal to the series
2015-1 notes' share of the trust at the end of the revolving period. The fixed investor percentage might cause the series
2015-1 notes to amortize more quickly than if the collections were distributed strictly based on the series' proportional
share of the trust's receivables.
Asset test
The transaction structure requires the trust to hold 100% of the principal receivables relative to the sum of the series
2015-1 notes' invested amount and the available subordinated amount.
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Payment priority – finance charge collections
On each distribution date, the indenture trustee will apply the interest collections allocated to the series 2015-1 notes
in the priority shown in table 1.
Table 1
Payment Waterfall
Priority
Payment
1
Class A monthly interest.
2
Monthly servicing fee.
3
An amount up to the reserve fund deposit amount.
4
An amount equal to the noteholders' default amount will be treated as a portion of the noteholders' principal collections(i).
5
An amount equal to the unreversed aggregate noteholders' charge-off amount and the reductions to the available subordinated
amount will be treated as a portion of the noteholders' principal collections(ii).
6
Monthly servicing fees that may have been previously waived.
7
Any amounts owed to the indenture and owner trustees.
8
Any remaining amount to the residual interest holder or successor servicer, if any.
(i)In item 4, the available interest collections will be used to cover the current monthly defaults, if any, and other items that would otherwise
reduce the pool balance. (ii)The amounts paid under item 5 will be used to make principal payments to get the invested amount back into parity
with the performing pool balance (reimburse the noteholders for losses that were not covered in previous months) and to reestablish the
subordination amounts that were previously reduced in previous collection periods.
To the extent that the floating interest collections for the series 2015-1 notes are insufficient to cover the series'
servicing fee, the noteholders' monthly interest, and the series' share of defaulted receivables, a payment shortfall will
be deemed to have occurred. Payment shortfalls will be first covered by amounts in the reserve account and then by
the reallocation of the trust's principal collections. Any unreimbursed reallocation of the trust's principal collections
will result in a write-down of the series 2015-1 notes' available credit enhancement. If the overcollateralization
amounts are below the required levels for any month, an early amortization period will begin.
Payment priority – principal collections
During the revolving period, the indenture trustee will pay the depositors the principal collections allocated to the
series 2015-1 notes in exchange for the new receivables that are sold to the trust. If the pool balance is less than the
required amount, the indenture trustee will then deposit the principal collections that it would otherwise allocate to the
depositors into the excess funding account to the extent necessary to cure the shortfall in the required pool balance.
The controlled accumulation period can range from one to five months depending on the trust's principal payment rate
and the payment maturities of any other series issued from the trust. Each month during the controlled accumulation
period, the indenture trustee will deposit the principal collections into the principal funding account, up to the
controlled deposit amount. The excess principal will continue to be reinvested in new receivables or shared across
other series as needed. The indenture trustee will distribute the amounts held in the principal funding account during
the accumulation period to the noteholders in a soft bullet (or nonguaranteed) payment on the expected final payment
date.
The series 2015-1 transaction structure incorporates early amortization events that occur under certain circumstances.
If an early amortization event occurs, the early amortization period will begin and the revolving or controlled
accumulation period, then in effect, will cease. During the early amortization period, the principal collections allocated
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to series 2015-1 notes will be used on each payment date to make principal distributions in the following priority:
• To the class A notes until paid in full (sequential pay); then
• To the class B notes until paid in full; and then
• Any remainder to the residual interest holder.
Amortization events
An amortization event will occur respecting the series 2015-1 notes if:
• On any determination date, the average monthly payment rate for the three preceding collection periods is less than
36%;
• On any determination date, the available subordinated amount for the next payment date will be less than the
required subordinated amount;
• On the expected principal payment date, the series 2015-1 notes are not paid in full;
• An event of default occurs (such as the issuer failing to pay interest or principal when due, the issuer breaching a
covenant or agreement, or the issuer becoming insolvent) regarding the series 2015-1 notes and the notes are
declared due and payable;
• A servicing default occurs regarding the series 2015-1 notes;
• The occurrence of specified events of bankruptcy, insolvency, or receivership relating to BMW FS Receivables
Corp., BMW Financial Services, or BMW Floorplan Master Owner Trust; or
• The trust or the transferor becomes an investment company according to the Investment Company Act of 1940.
Additional early amortization events include failure to comply with the transaction's material representations and
covenants, as well as failure to deposit payments into the trust accounts when due, deliver additional receivables when
due, and deliver required reporting statements according to the underlying documents.
Our analysis of dealer floorplan wholesale transactions consider, among other things, the bankruptcy at the
manufacturer level and the potential loss of significant forms of assistance at the dealer level under such
circumstances. Dealer floorplan asset-backed securities (ABS) transactions generally incorporate manufacturers'
bankruptcy events as early amortization events. However, the trust only includes the bankruptcy event of BMW
Financial Services (the servicer) as an automatic early amortization event. We believe the absence of a manufacturer
bankruptcy amortization trigger is mitigated by the following factors:
• The unsecured corporate rating on BMW AG (the primary manufacturer; 'A+/Stable/A-1');
• The inclusion of BMW Financial Services N.A. LLC, a U.S. monoline captive finance company, as an automatic
early amortization event upon its bankruptcy;
• The deal's requirement to increase credit enhancement requirements at a high payment rate trigger point of 45%;
and
• The automatic early amortization payment rate trigger of 36%.
Collateral Overview And Master Trust Statistics
The collateral consists of receivables generated under lines of credit extended by BMW Financial Services to dealers
throughout the U.S. The dealers use floorplan financing to purchase new and used automobiles and light trucks, and
motorcycles, pending sale to the ultimate retail buyer. Dealers generally must repay the floorplan loan as soon as they
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sell the underlying vehicle.
As of May 31, 2015, the trust's portfolio consisted of 189 dealers or, if affiliated dealers are treated as a single
borrower, 115 dealer groups. The principal receivables totaled approximately $2.1 billion, with an average dealer
balance of approximately $11.2 million per account. The accounts in the trust portfolio are located primarily in
California, New Jersey, Texas, Florida, and New York.
Concentration limits
The trust incorporates the following concentration limits, which are each shown as a percentage of the pool balance:
• A 35% used-vehicle concentration limit; and
• Dealer concentration limits, as shown in table 2.
Table 2
Dealer Concentration Limits(i)
Concentration limit (% of the pool balance)
Penske Automotive Group Inc. (BB/Stable/--)
14.0
Sonic Automotive Inc. (BB/Stable/--)
11.0
AutoNation Inc. (BBB-/Stable/--)
10.0
Fourth-largest dealer
4.0
Fifth-largest dealer
3.5
Sixth-largest dealer
3.0
Seventh-largest dealer
3.0
All others
2.0 (each)
(i)None of the dealers are affiliated with any other dealer or group of dealers that are related by common ownership.
Geographic distribution
Table 3 shows the geographic distribution of the vehicle inventories for the receivables in the trust portfolio.
Table 3
Geographic Distribution Of Trust Receivables(i)
Receivables outstanding ($) Receivables outstanding (%)
California
604,440,073
28.44
New Jersey
196,646,417
9.25
Texas
176,271,787
8.29
Florida
141,829,961
6.67
New York
127,859,330
6.02
Other states
Total
878,429,007
41.33
2,125,476,576
100.00
(i)As of May 31, 2015.
Collateral Historical Performance
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Payment rates
Payment rates denote inventory turnover and, as a result, often indicate whether inventory discounting or production
cutbacks may be forthcoming. The total U.S. portfolio's average monthly payment rates have trended lower since the
2010 average of 56.66% (see table 4), as the rate of increase in vehicle sales has also declined.
Table 4
Monthly Payment Rates For the U.S. Floorplan Portfolio
Five months ended May 31
Year ended Dec. 31
2015
2014
2013
2012
2011
2010
Highest month (%)
55.30
62.69
57.19
64.35
66.65
66.79
Lowest month (%)
42.98
39.64
43.48
49.12
44.65
40.11
Avg. of the months in the period (%)
48.70
51.74
51.02
57.37
58.68
56.66
Net losses
The total U.S. portfolio had 0% net losses from 2010-2015 (see table 5). In our stress scenarios, we consider factors
other than historical losses when determining the transaction's ability to withstand stress case scenarios
commensurate with the assigned preliminary rating. However, the significant assistance that BMW AG offers its dealer
base influences the historical loss performance. This assistance helps mitigate losses, especially during times of
financial stress for the dealers.
Table 5
Monthly Payment Rates For the U.S. Floorplan Portfolio
Five months ended March 31
2015
Avg. principal balance (000s $)
Year ended Dec. 31
2014
2013
2012
2011
2010
2,500,386 2,390,376 2,296,348 1,836,170 1,756,050 1,523,679
Net losses (000s $)
Net losses/avg. principal balance (%)
0
0
0
0
8
18
0.00
0.00
0.00
0.00
0.00
0.00
Cash Flow Modeling Assumptions
As discussed above, we view the CCR on the manufacturer as a differentiating factor affecting the credit quality of a
pool of non-diversified ADFP loans.
BMW AG is currently rated 'A+/Stable/A-1'. For a manufacturer rated in the 'A' category, typical ranges for our
stressed default-to-liquidation (DTL) and loss-given default (LGD) ratios are shown in table 6 below (see "Global
Non-Diversified Auto Dealer Floorplan Rating Methodology And Assumptions," published Feb. 5, 2015).
Loss assumptions
In determining our cash flow stresses for DTL and LGD, we start with base stress assumptions for DTL and LGD that
are equal to the approximate midpoint of the base ranges for a manufacturer in the 'A' rating category as provided for
in our Global Non-Diversified Auto Diversified Dealer Floorplan criteria. However, because we believe that the
manufacturer CCR may not necessarily capture all the credit risks associated with a non-diversified ADFP pool, our
criteria provides for the adjustment of the DTL and LGD assumptions within the ranges shown in table 6 to recognize
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certain manufacturer- and dealer base-specific characteristics that we view as most applicable to the related floorplan
loans' credit quality, such as:
• The dealer base's above-average financial strength, based on average dealer profitability, net worth, and service
absorption rates;
• The manufacturer's domestic and global market share and position, including its strong brands in the
premium/luxury segment;
• Our view that the premium/luxury vehicle market is vulnerable to a "substitution effect," in which the consumer will
opt to purchase non-luxury vehicles should economic conditions and disposable incomes decline;
• The manufacturer's above-average inventory and dealer management practices;
• The overall quality of the vehicles being produced and the overall product mix of the vehicles securing the floorplan
loans; and
• The positive modifier in the CCR on BMW AG (i.e., the 'A+' rating is the highest notch within the 'A' category).
For this transaction, our stressed DTL, LGD, loss-to-liquidation (LTL), and liquidation rates (assuming a 45% payment
rate trigger) (see table 6) leads to defaults of approximately 51% with a severity of approximately 32% (weighted
average LGD, which equals an overall cumulative net loss of approximately 16.4%).
Table 6
DTL, LGD, And LTL Cash Flow Modeling Assumptions For 'AAA' Rated ABS
Manufacturer corporate credit
rating
'A+'
Base DTL range (%)
Modeled DTL (%)
Base LGD range
(%)
Modeled LGD (%)
LTL (%)
One
41.50-53.5
45.1
27.5-31.5
29.5
13.3
Six
62.5-80.5
67.7
36.5-42.0
39.3
26.6
Month
DTL--Default to liquidation rate. LGD--Loss given default. LTL--Loss-to-liquidation rate. ABS--Asset-backed securities.
Liquidation rate assumption
We consider the payment rate an important performance variable in dealer floorplan transactions. All else being equal,
an increase in the payment rate will decrease the amount of receivables that are exposed to losses in any given month.
The series 2015-1 transaction incorporates a 45.0% three-month average payment rate trigger, which, if triggered,
causes the required available subordinated amount to increase. If, as we assume in our 'AAA' stress scenario, the
required amount is not available, then the amortization period will begin. In our view, the dealers' ability to sell their
inventory of vehicles may be severely hampered if the manufacturer files for bankruptcy protection, which may cause
payment rates to drop sharply because retail customers may be more hesitant to purchase the manufacturer's vehicles.
In our 'AAA' stressed cash flows, we assume that the pool's liquidation rate starts at 100% of the 45.0% or 36.0%
payment rate trigger, as applicable, in the first month of the early amortization period, and then declines straight line to
70% of the payment rate trigger (31.5% or 25.2%, respectively) by month six. The remaining collateral is assumed to
fully liquidate following month six. The monthly liquidation rate is equal to the monthly decline in the pool balance
(i.e., the sum of the monthly principal collections from performing dealers, recoveries, and net losses, divided by the
pool balance as of the beginning of the month).
The payment rate trigger decreases to 36.0% if the available subordinated amount is increased to 15.0% of the
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collateral amount. Therefore, we also run an additional cash flow to test the ability of this stepped-up credit
enhancement to withstand a 'AAA' stress. This cash flow uses stresses that are identical to the stresses described
above, except that the liquidation rate will start at 100% of the 36.0% payment rate trigger and decline to 70% of the
36.0% payment rate trigger by month six.
Yield and coupon stresses
The interest rate on the class A notes will be floating based on one-month LIBOR, with a margin that will be
determined on the pricing date. The receivables bear interest at a variable rate based on the prime rate. We applied
stressed yield and coupon assumptions derived from our one-month LIBOR and prime rate interest rate vectors (see
"U.S. Interest Rate Assumptions Revised For May 2012 And Thereafter," published April 30, 2012) in our 'AAA' rating
scenario to stress the basis risk inherent in this transaction. The transaction is scheduled to pay principal to the class A
noteholders on the expected final payment date. More specifically, we looked at the degree to which the projected
monthly prime rate exceeded the monthly one-month LIBOR rate for the period the transaction remains outstanding.
We applied the lowest monthly excess of the prime rate over one-month LIBOR during a five-year period when
determining the excess spread for our 'AAA' rating scenario.
Top dealer concentrations
As shown in table 7, the transaction has, in our view, significant dealer concentrations. Consistent with our criteria, the
16.52% credit enhancement available in this transaction exceeds the dealer concentration floor. The dealer
concentration base credit enhancement floor for 'AAA' rated ABS is equal to the greater of:
• 100% of the top dealer's concentration (14.00% in this transaction: 100.0% x 14.0%);
• 33% of the top five dealers (14.17% in this transaction: 33.0% x 42.50%); or
• 25% of the top 10 dealers. (13.63% in this transaction: 25.0% x 54.50%).
The criteria address the risk of one or more large dealer defaults by setting a credit enhancement floor for
investment-grade-rated non-diversified ADFP ABS that could withstand the default of a percentage of the largest
dealers (based on the concentration limits in the transaction documents), with an assumption that the trust has limited
or no access to the underlying collateral. In addition, we believe that the large concentrations for the three largest
manufacturers are mitigated by the facts that they are among the largest dealer groups in the U.S., are rated by
Standard & Poor's (see table 7), and sell vehicles from a diverse group of manufacturers (and are therefore less
dependent than non-diversified dealers upon the success of the BMW brand).
Sensitivity Analysis
Our ratings incorporate credit stability as one of several factors that we use to determine an issuer's or an issue's
creditworthiness (see "Methodology: Credit Stability Criteria," published May 3, 2010). Based on our rating stability
definition, assigning a 'AAA' rating to a new class of dealer floorplan receivables-backed notes signifies that we do not
expect the rating on the notes to fall more than one rating category within 12 months of the rating assignment under
moderate stress conditions.
To test whether the 'AAA (sf)' rating we assigned to the 2015-1 class A notes would be vulnerable to a downgrade of
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more than one category in a moderate stress scenario, we analyzed the potential changes in the corporate rating on
the manufacturer. We focused on the effect of a change in the corporate rating on the manufacturer since it is one of
the two main factors in determining our base cumulative loss levels. The second major factor, the payment rate trigger,
is defined in the transaction documents.
Table 7 below shows the effect that a downgrade on a manufacturer could have on the non-diversified ADFP rating.
Based on this analysis, we believe the criteria are consistent with our credit stability criteria. (see "Global
Non-Diversified Auto Dealer Floorplan Rating Methodology And Assumptions," published Feb. 5, 2015).
Table 7
Expected Impact Of A Manufacturer CCR Downgrade On A Typical ADFP 'AAA' Rating
Expected ADFP rating
Current manufacturer CCR One-category downgrade of CCR Two-category downgrade of CCR CCR downgraded to 'CCC'
'AAA'
'AA+'
'AA'
'BBB+'
'AA'
'AA+'
'AA'
'A-'
'A'
'AA+'
'AA'
'A'
'BBB'
'AA+'
'AA'
'A+'
'BB'
'AA+'
'AA-'
'AA-'
'B'
'AA'
'AA'
'AA'
CCR--Corporate credit rating. ADFP--Non-diversified auto dealer floorplan.
Related Criteria And Research
Related Criteria
• Methodology And Assumptions For Ratings Above The Sovereign--Single-Jurisdiction Structured Finance, May 29,
2015
• Methodology: Criteria For Global Structured Finance Transactions Subject To A Change In Payment Priorities Or
Sale Of Collateral Upon A Nonmonetary EOD, March 2, 2015
• Global Non-Diversified Auto Dealer Floorplan Rating Methodology And Assumptions, Feb. 5, 2015
• Global Investment Criteria For Temporary Investments In Transaction Accounts, May 31, 2012
• U.S. Interest Rate Assumptions Revised For May 2012 And Thereafter, April 30, 2012
• Understanding Standard & Poor's Rating Definitions, June 3, 2009
• Standard & Poor's Revises Criteria Methodology For Servicer Risk Assessment, May 28, 2009
• Legal Criteria For U.S. Structured Finance Transactions: Criteria Related To Asset-Backed Securities, Oct. 1, 2006
Related Research
• U.S. Economic Forecast: The Terrible Twos, June 26, 2015
• Twenty-Seven Ratings Raised And 56 Affirmed From 28 U.S. Non-Diversified Auto Dealer Floorplan ABS
Transactions, Feb. 10, 2015
• Global Structured Finance Scenario And Sensitivity Analysis: Understanding The Effects Of Macroeconomic Factors
On Credit Quality, July 2, 2014
In addition to the criteria specific to this type of security (listed above), the following criteria articles, which are
generally applicable to all ratings, may have affected this rating action: "Post-Default Ratings Methodology: When
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Does Standard & Poor's Raise A Rating From 'D' Or 'SD'?," March 23, 2015; "Global Framework For Assessing
Operational Risk In Structured Finance Transactions," Oct. 9, 2014; "Methodology: Timeliness of Payments: Grace
Periods, Guarantees, And Use of 'D' And 'SD' Ratings," Oct. 24, 2013; "Counterparty Risk Framework Methodology
And Assumptions," June 25, 2013; "Criteria For Assigning 'CCC+', 'CCC', 'CCC-', And 'CC' Ratings," Oct. 1, 2012;
"Methodology: Credit Stability Criteria," May 3, 2010; and "Use of CreditWatch And Outlooks," Sept. 14, 2009.
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