Hyundai Capital America’s lack of diverse funding sources could limit the captive’s financial flexibility as the cost for debt funding rises and the economy continues to deteriorate as a result of COVID-19.
In fact, the captive’s “significant reliance” on commercial paper and a revolving line of credit could squeeze the lender’s access to funds, Moody’s Investors Services said in a research note. Hyundai Motors and its subsidiaries are on review for a downgrade as of late March. S&P Global Ratings and Fitch Ratings, too, placed the automaker on a negative outlook.
HCA has $6.5 billion in available liquidity, a company spokeswoman confirmed with Auto Finance News. HCA’s total liquidity is calculated by combining its liquid assets and credit line, she said, noting that amount should be enough capital to cover the global captive’s outstanding redemptions over the next six months.
Still, the cost of the captive’s debt funding has already increased, according to its latest auto asset-backed securitization deal. In its first $1 billion prime auto receivables trust of the year, spreads increased 91 basis points to 130 bps, compared to its last auto ABS deal in October 2019. Hyundai, which issued an $894 million securitization backed by auto lease receivables in January, usually securitizes two lease and two loan deals every year.
HCA’s originations declined 5% year over year to $12.2 billion at yearend 2019, according to Big Wheels Auto Finance Data. The captive’s total portfolio grew slightly with a 1% increase to $30.1 billion.
As for the OEM, Hyundai Motor Co. reported a 43% YoY decline in March sales in the U.S. for a total of 33,118 units, as a result of the COVID-19 pandemic. The captive relaunched its Hyundai Assurance program, covering up to six months of payments for Hyundai owners who purchased or leased a vehicle between March 14 and April 30, if they lose their job due to COVID-19 this year. Moreover, the captive is offering a 90-day deferred payment available only on new purchases of Hyundai vehicles financed at 0% APR.