Rating Action: Moody's assigns provisional ratings to Navistar Financial Dealer Note Master Owner Trust II, Series 2020-1 notes
Global Credit Research - 14 Jul 2020
Approximately $300 million securities rated
New York, July 14, 2020 -- Moody's Investors Service (Moody's) has assigned provisional ratings to the notes to be issued by Navistar Financial Dealer Note Master Owner Trust II, Series 2020-1 (NAVMOT 2020-1). The securitization will be backed by a revolving pool of dealer floorplan loans secured by mostly new medium and heavy duty trucks, school buses and severe service vehicles. Navistar Financial Corporation (NFC), an indirect wholly-owned subsidiary of Navistar International Corp. (Navistar, B2 negative), will be the sponsor and servicer of the transaction. Wells Fargo Bank, National Association (long-term deposits Aa1, long-term CR assessment Aa1(cr), short-term bank deposits P-1, BCA a2) will be the back-up servicer.
The complete rating actions are as follows:
Issuer: Navistar Financial Dealer Note Master Owner Trust II, Series 2020-1
Class A Floating Rate Dealer Note Asset Backed Notes, Assigned (P)Aaa (sf)
Class B Floating Rate Dealer Note Asset Backed Notes, Assigned (P)Aa3 (sf)
Class C Floating Rate Dealer Note Asset Backed Notes, Assigned (P)A2 (sf)
Class D Floating Rate Dealer Note Asset Backed Notes, Assigned (P)Baa3 (sf)
RATINGS RATIONALE
The ratings are based on the characteristics of the securitized pool of loans, structural features, the historical performance of NFC's managed portfolio, the experience and expertise of NFC as originator and servicer of the loans, and the legal aspects of the transaction.
Moody's loss at a Aaa stress for NAVMOT 2020-1 is 23.00%. Moody's based its loss at a Aaa stress on an analysis of the quality of the floorplan loans and the transaction's structural features. A primary consideration for assessing the quality of the floorplan loans is the strength of the manufacturer and the type of vehicles to which the dealerships and the receivables have exposure. Moody's also considered the size of the dealership base that is part of the NAVMOT portfolio, the overall trust monthly payment rate, and the ability of NFC to perform servicing functions. Other factors driving our analysis of NAVMOT 2020-1 include the transaction's credit enhancement step-up trigger(s), early amortization trigger, and vehicle values under stressed scenarios.
At closing, the Class A notes, Class B notes, Class C notes, and Class D notes benefited from 24.75%, 19.75%, 15.00%, and 10.00% of hard credit enhancement, respectively. Hard credit enhancement for the notes consists of a combination of overcollateralization, a non-declining reserve account, and subordination for the Class A, B, and C notes.
The rapid spread of the coronavirus outbreak, the government measures put in place to contain it and the deteriorating global economic outlook, have created a severe and extensive credit shock across sectors, regions and markets. Our analysis has considered the effect on the performance of consumer and commercial obligors from the collapse in US economic activity in the second quarter and a gradual recovery in the second half of the year. However, that outcome depends on whether governments can reopen their economies while also safeguarding public health and avoiding a further surge in infections. As a result, the degree of uncertainty around our forecasts is unusually high. We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was "Moody's Approach to Rating Floorplan Asset-Backed Securities" published in June 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1230114. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
Factors that would lead to an upgrade or downgrade of the ratings:
Up
Moody's could upgrade the ratings on the notes if levels of credit protection are greater than necessary to protect investors against current expectations of loss. Moody's then current expectations of loss may be better than its original expectations because of lower frequency of default by the underlying obligors or slower depreciation in the value of the equipment securing obligors' promise of payment. As the primary drivers of performance, positive changes in the US macro economy and the performance of various sectors in which the obligors operate could also affect the ratings. This transaction has a sequential pay structure and therefore credit enhancement will grow as a percentage of the collateral balance as collections pay down senior notes. Prepayments and interest collections directed toward note principal payments will accelerate this build-up of enhancement.
Down
Moody's could downgrade the notes if levels of credit protection are insufficient to protect investors against current expectations of portfolio losses. Credit enhancement could decline if excess spread is not sufficient to cover losses in a given month. Losses could rise above Moody's original expectations as a result of a higher number of obligor defaults or deterioration in the value of the equipment securing obligors' promise of payment. As the primary drivers of performance, negative changes in the US macro economy and the performance of various sectors in which the obligors operate could also affect the ratings. Other reasons for worse-than-expected performance include poor servicing, error on the part of transaction parties and inadequate transaction governance.
Additional research including a pre-sale report for this transaction is available at www.moodys.com.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
Further information on the representations and warranties and enforcement mechanisms available to investors are available on http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1237054.
The analysis relies on a Monte Carlo simulation that generates a large number of collateral loss or cash flow scenarios, which on average meet key metrics Moody's determines based on its assessment of the collateral characteristics. Moody's then evaluates each simulated scenario using model that replicates the relevant structural features and payment allocation rules of the transaction, to derive losses or payments for each rated instrument. The average loss a rated instrument incurs in all of the simulated collateral loss or cash flow scenarios, which Moody's weights based on its assumptions about the likelihood of events in such scenarios actually occurring, results in the expected loss of the rated instrument.
Moody's quantitative analysis entails an evaluation of scenarios that stress factors contributing to sensitivity of ratings and take into account the likelihood of severe collateral losses or impaired cash flows. Moody's weights the impact on the rated instruments based on its assumptions of the likelihood of the events in such scenarios occurring.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating action(s) announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.
Chloe Zhang Analyst Structured Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Karen Ramallo Senior Vice President/Manager Structured Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653
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