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07 May 2002
CORRECTION TO HEADLINE: MOODY'S RATES ASSET-BACKED NOTES ISSUED BY NAVISTAR FINANCIAL 2002-A OWNER TRUST
New York, May 07, 2002 -- Moody's Investors Service assigned a rating of Prime-1 to the Class A-1 notes, a rating of Aaa each to the Class A-2, A-3, and A-4 notes, and a rating of A3 to the Class B notes issued by Navistar Financial 2002-A Owner Trust. The ratings are based on the anticipated cash flows from a pool of retail loans secured by new and used medium or heavy-duty trucks, truck chassis, buses or trailers. In addition, the pool benefits from Navistar Financial Corporation's strong origination and servicing capabilities as well as from a demonstrated ability to manage its portfolio through severe industry downturns.
The complete rating actions are as follows:
Issuer: Navistar Financial 2002-A Owner Trust
$ 73,000,000 in 1.96% Class A-1 Asset-Backed Notes rated Prime-1.
$182,000,000 in 3.07% Class A-2 Asset-Backed Notes rated Aaa.
$104,000,000 in 4.09% Class A-3 Asset-Backed Notes rated Aaa.
$121,000,000 in 4.76% Class A-4 Asset-Backed Notes rated Aaa.
$ 20,000,000 in 4.95% Class B Asset-Backed Notes rated A3.
The transaction consists of four classes of senior notes and one class of subordinated notes. The Class A-1 money market tranche generally will receive all principal payments until it is paid in full, at which time the Class A and B notes will receive principal payments on a pro-rata basis (the remaining Class A notes will be paid sequentially). However, if the reserve account drops below 1.0% of the aggregate starting balance of all receivables transferred to the trust, all principal payments will be made to the Class A notes in sequential order and then to the B notes. If the notes are accelerated, all principal payments will be made to the Class A-1 notes, then pro-rata to the Class A-2, Class A-3, and Class A-4 notes, and then to the Class B notes.
Credit enhancement for the Class A Notes includes the 4.00% subordination of the Class B notes, which is higher than the 3.75% subordination in Navistar Financial's 2001-B deal, due to lower levels of excess spread in this transaction relative to the previous one. Moody's noted that the credit enhancement provides support for the transaction as weakness continues in the trucking industry due to lower freight shipments in addition to higher fuel and insurance costs. However, in Navistar Financial's portfolio, there was some recent improvement in performance noted. In addition, the company benefits from the repurchase of certain repossessed trucks by its parent company, International Truck and Engine Corporation (International), which helps insulate its owned and managed portfolios from the sharp drop in used truck values.
There is also a reserve account with an initial balance of $15,734,758.86, which was funded at closing. The amount in the reserve account consists of two components, the general reserve amount and the yield supplement amount. The initial deposit into the reserve account in respect of the general reserve amount was $15,102,857.11, or 4.75% of the initial pool balance. Through available excess spread, this amount will grow to 5.5% of the outstanding pool amount. The required percentage could grow to 10.0% of the outstanding pool amount if certain loss or delinquency triggers are breached.
The reserve account also has a yield supplement component, which covers any under-water contracts where the APR is lower than the weighted average bond cost plus servicing fee. It also covers contracts with 0% financing for up to 12 months (all scheduled payments are used for principal reduction) that increase to a pre-specified interest rate thereafter. The initial deposit into the reserve account in respect of the yield supplement amount was $631,901.75. This amount is calculated for each monthly distribution date for all retail receivables transferred to the trust through that date and any excess is released through the waterfall. The reserve account has a floor of 2.0% of the aggregate starting receivables balance of all receivables transferred to the trust.
Similar to other Navistar Financial deals, this is a pre-funded transaction where $500,000,000 in notes were issued against an initial pool balance of $317,954,886.53. At closing, proceeds from 36% or $182,045,113.47 of the notes were not covered by receivables and were placed in a pre-funding account. As Navistar Financial generates additional receivables, they will be sold to the trust over a period of up to 6 months in exchange for release of funds held in the pre-funding account. A subsequent sale occurred at closing when Navistar Financial sold an additional $69,994,775.15 in receivables to the trust through the seller, Navistar Financial Retail Receivables Corporation (NFRRC). Also, an additional $3,757,071.31, covering the incremental required general reserve and yield supplement amounts, was deposited to the reserve account in connection with this subsequent sale of receivables, bringing the total amount deposited to the reserve account at closing to $19,491,830.17.
Due to Navistar Financial's history of generating receivables consistent with its existing portfolio mix, Moody's does not expect the composition of the pool to change materially as a result of the pre-funded period. In addition, there is $1,964,348.69 in cash available to cover the negative carry resulting from the lower yield on the pre-funded account relative to the interest rates paid on the notes.
Navistar Financial 2002-A Owner Trust is a Delaware common law trust formed by NFRRC, a bankruptcy-remote special-purpose corporation. In turn, NFRRC is wholly owned by Navistar Financial (senior unsecured rating of Ba1), which provides wholesale, retail, and lease financing for the dealers and customers of its parent, International. Headquartered in Warrenville, IL. International is a leading manufacturer of mid-range diesel engines and medium- and heavy-duty trucks, school buses, severe service vehicles, and parts and services sold under the International brand.
Additional research is available on http://www.moodys.com.
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