Standard & Poor's raised its ratings on three automotive dealership groups — Group 1 Automotive Inc., Sonic Automotive Inc., and United Auto Group Inc. The outlooks are stable.
Automotive dealership operators make heavy use of floorplan credit facilities to fund new vehicle inventories. The rating actions reflect Standard & Poor's view that such borrowings are more akin to trade payables than debt. While the terms of floorplan facilities vary by lender, they typically contain features that distinguish them from other debt obligations, including the following:
Floorplan financing is readily available for new vehicle retailers, and is offered by vehicle manufacturers and commercial lenders;
Loan-to-value ratios are typically 100%;
Repayment is not required until vehicles are sold;
Vehicle manufacturers generally offer various forms of subsidies that largely offset the borrowing costs of floorplan facilities.
The financial risk of automotive dealership groups is lower in light of the more sanguine view Standard & Poor's is taking with respect to these liabilities.