BMW Floorplan Master Owner Trust (Series )

Transcription

1 Presale: BMW Floorplan Master Owner Trust (Series ) Primary Credit Analyst: Carl J Neff, CFA, New York (1) ; carl.neff@standardandpoors.com Secondary Contact: James F Traynor, New York (1) ; james.traynor@standardandpoors.com Table Of Contents $800 Million Floating-Rate Vehicle Loan-Backed Notes Series Rationale Transaction Overview Changes From The Series 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 JULY 13,

2 Table Of Contents (cont.) Sensitivity Analysis Related Criteria And Research JULY 13,

3 Presale: BMW Floorplan Master Owner Trust (Series ) $800 Million Floating-Rate Vehicle Loan-Backed Notes Series This presale report is based on information as ofjuly 13, 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) Amount (mil. $) Interest rate A AAA (sf) One-month LIBOR plus a margin to be determined. Credit support (% of collateral amount) B NR N/A (i)the rating is preliminary and subject to change at any time. NR--Not rated. NA--Not applicable Profile Expected closing date July 22, Scheduled payment date July 16, Stated final maturity date July 15, Interest payment date The 15th of each month, beginning Aug. 17, Collateral Servicer/sponsor Transferor Indenture trustee Owner trustee Delaware trustee Joint bookrunners (underwriters) 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. BMW Financial Services N.A. LLC. BMW FS Receivables Corp. Citibank N.A. U.S. Bank Trust N.A. U.S. Bank Trust N.A. 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 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 JULY 13,

4 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 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 Transaction The structural and credit enhancement changes from the series 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 Upon a reduction in the three-month average payment rate below 45%, the required hard enhancement will be JULY 13,

5 18.68% (as a percentage of the collateral amount) for series , down from 21.41% for series 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. JULY 13,

6 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 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. JULY 13,

7 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 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 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 notes based on the floating allocation percentage, or the series notes' proportional share of the trust's receivables. During the revolving period, principal collections will be allocated to the series notes based on the floating investor percentage. During the controlled accumulation and early amortization periods, the series notes' allocation of the trust's principal collections will be based on the fixed investor percentage, which is equal to the series notes' share of the trust at the end of the revolving period. The fixed investor percentage might cause the series 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 notes' invested amount and the available subordinated amount. JULY 13,

8 Payment priority finance charge collections On each distribution date, the indenture trustee will apply the interest collections allocated to the series 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 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 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 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 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 JULY 13,

9 to series 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 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 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 notes and the notes are declared due and payable; A servicing default occurs regarding the series 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 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 JULY 13,

10 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, New Jersey 196,646, Texas 176,271, Florida 141,829, New York 127,859, Other states 878,429, Total 2,125,476, (i)as of May 31, Collateral Historical Performance JULY 13,

11 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 Highest month (%) Lowest month (%) Avg. of the months in the period (%) Net losses The total U.S. portfolio had 0% net losses from (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 Year ended Dec Avg. principal balance (000s $) 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 (%) 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 JULY 13,

12 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+' Month Base DTL range (%) Modeled DTL (%) Base LGD range (%) Modeled LGD (%) LTL (%) One Six 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 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 JULY 13,

13 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 class A notes would be vulnerable to a downgrade of JULY 13,

14 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 JULY 13,

15 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, JULY 13,

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