DBRS Confirms Canadian SWIFT Master Auto Receivables Trust, Series 2010-1 at AAA (sf)

As part of DBRS’s continued effort to provide market participants with updates on an annual basis, DBRS has today confirmed the rating of the Floating Rate Floorplan Receivables-Backed Notes, Series 2010-1 (the Notes) issued by Canadian SWIFT Master Auto Receivables Trust (the Trust) at AAA (sf).

The rating is based on the following factors:

(1) The high level of credit enhancement available to support the obligations: 50.7% of overcollateralization and a cash reserve initially equal to 1.0% of the Notes, in addition to excess interest rate spread. To protect the structure against negative yield arising from the buildup of cash during the accumulation periods, an accumulation period reserve account of 0.50% will be funded in the three collection periods prior to the commencement of the accumulation period.

(2) Historically low net loss levels exhibited by the portfolio.

(3) Consistent monthly payment rates from dealers, averaging 34.3% between March 2010 and January 2011 and ranging from a low of 23.0% to 54.5% in the same time period, reflecting the seasonal selling pattern of automobiles.

(4) Structural features to protect the noteholders, including the following:
(a) A performance guarantee from the seller’s parent, Ally Financial Inc. (Ally), formerly known as GMAC Inc.
(b) Payment rate triggers that step up the required cash reserve in the event that the performance of the portfolio begins to deteriorate from current levels.
(c) Daily remittance of cash collections.
(d) Daily interest collections held in the collections account by the custodian to ensure monthly interest payments are met prior to releasing excess collections to the seller.
(e) Rating-based trigger requiring installation of a backup servicer within 120 days of Ally’s DBRS rating falling to B (low) or lower.
(f) A replacement servicer reserve of $250,000 funded at closing.

(5) The overcollateralization amount of 50.7% is also expected to absorb negative impact on the portfolio arising from dilutions.

(6) All accounts and their associated receivables transferred to the Trust after the close of the transaction must meet the same eligibility criteria as the accounts and receivables that were sold to the Trust as part of the initial transfer. Eligibility criteria include the following: (a) all receivables are supported by a perfected first-priority security interest in the underlying vehicle that is being financed; (b) all receivables are created in compliance with the underlying Ally floorplan financing requirements and cannot be rated in the Programmed or No Credit rating categories established by Ally; and (c) none of the receivables is charged off as uncollectible.

On closing, the proceeds from the sale of the Notes were applied by the Trust in payment of the price for the receivables and the related collateral security pursuant to the Co-Ownership Sale and Servicing Agreement. In addition, Ally made an initial deposit of $17 million to fund the cash reserve account. The co-ownership interest was purchased by the Trust and is supported by true-sale opinions provided by the seller’s counsel.

The receivables relate to advances made by Ally, known as wholesale or floorplan financing, to a variety of independent retail auto dealers in Canada to support dealer purchases of new and used vehicles. The receivables bear interest at a floating rate of interest.

Following the closing, a revolving period for the transaction commenced and will continue until the commencement of the accumulation period or early amortization period. During the revolving period, Ally will originate new receivables, which, must meet certain eligibility criteria, to be added to the portfolio of accounts. On a daily basis, during the revolving period, to the extent that the adjusted pool balance is greater than the required pool balance, the servicer will distribute to the seller the series share of principal collections.

The accumulation period is scheduled to begin on the September 2012 settlement period, which is six settlement dates prior to the scheduled final payment date of the Notes. However, depending on the performance of the receivables, the servicer may elect to lengthen or shorten the accumulation period to as little as one month. The decision to change the scheduled start of the accumulation period is at the option of the servicer and will be made in light of the payment rate of the receivables and other factors. During the accumulation period, the share of principal collections for the Notes will accumulate in the principal funding account for the purpose of repaying the outstanding principal amount of the Notes. Pursuant to the transaction documents, collections from the portfolio may be available to make principal and/or interest payments on other series of notes issued by the Trust.

To protect the structure from negative interest carry during the accumulation period, an accumulation reserve account will be seeded in the three reporting periods prior to the commencement of the accumulation period, scheduled to begin in September 2012. The accumulation reserve required amount is 0.50% of the invested amount.

The Notes bear interest at rates of one-month Canadian Deposit Overnight Rate (CDOR) plus a fixed spread of 1.50%. The receivables earn a floating rate of interest based on prime plus a spread. The prime rate charged to accounts by Ally is maintained at or above the prime rate. As the cost of funds for both the underlying assets and the Notes issued by the Trust are based on floating-rate indexes, which have historically maintained a consistent funding relationship and reset regularly, no hedging instruments are required.

Ally is the servicer of the initial accounts and any additional accounts and will service in accordance with the credit and collection policies that are applied to its overall owned and managed portfolio of floorplan financing receivables. Cash collected with respect to the receivables must be remitted to the Trust within two business days of processing by the servicer unless the following requirements are met: (1) Ally is the servicer, (2) no servicer default has occurred and is continuing and (3) Ally is rated at least BBB (low) by DBRS or equivalent. If these requirements are met, cash can be remitted to the collection accounts on or before each distribution date and commingled for up to one month, subject to DBRS partial-commingling criteria as outlined in the DBRS methodology “Legal Criteria for Canadian Structured Finance,” which can be found at www.dbrs.com under Methodologies. However, the servicer currently does not meet the rating threshold to permit commingling and as such must remit collections on a daily basis.

The accounts have been transferred on a fully serviced basis by Ally. As long as Ally is the servicer, no servicing fees are required to be paid. To provide sufficient funds to pay for costs to transition the management of the portfolio to a replacement servicer, Ally has deposited $250,000 in a segregated account on closing. An additional 1.0% annual servicing fee, generated from monthly cash flows arising from the receivables, will also be available to pay for servicing fees and expenses, if required. The amounts deposited with respect to the replacement servicer fee are required to be invested in permitted investments. The structure further protects Noteholders from a decline in the performance of the portfolio and in the financial health of Ally by requiring that a backup servicer be appointed within 120 days of Ally’s rating falling to B (low) or lower. In addition, the servicer can be replaced subject to certain occurrences that will trigger a servicer default. Upon the occurrence of a servicer default, the custodian may provide the servicer with a notice of termination if directed so by a co-owner or by petition to an appropriate court.

For more detailed information on the transaction structure, please refer to the March 25, 2010, rating report of the Trust at www.dbrs.com.

The performance and characteristics of the pool and the Notes are available and updated each month in the Monthly Canadian ABS Report available at www.dbrs.com.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodology is Canadian Wholesale Floorplan Methodology, which is available on our website under Methodologies.