Ford Motor Credit recently increased the capacity of FCAR, its asset-backed commercial paper conduit, to $10 billion from $1.5 billion.

Meanwhile, General Electiric Capital Corp. increased the capacity of Edison Asset Securitization, already the largest ABCP conduit out there, to more than $30 billion.

As has been the story since last fall, credits like Ford are more often turning to the secured debt markets for financing, often able to get better pricing through securitization. Ford's long term credit rating has been nicked by all three rating agencies to A2/A/A+ (M/S/F).

What's interesting is that Ford's corporate CP rating is still A1/P1/F1, the highest short-term debt rating awarded by all three agencies. That Ford would expand its ABCP capacity to such an extent indicates what one source dubbed a "defensive posture."

Further, the source also noted the increase in capacity probably suggests that Ford is getting comparable, if not better pricing in the ABCP market than in the unsecured CP market, despite its CP rating.

"What's going on in the industry is that companies may have a diminished capacity to place their own CP," said Sam Pilcer, of Moody's Investors Service. "What we're seeing is a lot of these credits that used to be able to issue their own CP, are basically either out of the business or have much less liquidity in the market."

On the term side, the asset-backed component to Ford's medium- and long-term debt has risen to the mid-30% for the last two years, up from 18.9% in 1999, according to Thomson Financial. In the fourth quarter of last year, the company issued more than $5 billion in ABS, and no corporate debt.

For the whole 2000, Ford issued $15 billion in ABS, more than twice the volume of any previous year. So far in 2001, Ford has issued $6.7 billion in ABS.

Fallen Angels

From those corporations that have actually lost their commercial paper tier-one ratings, the ABCP market will continue to benefit in volume numbers.

In the Moody's universe, P1' issuers like AT&T, Corning, and Honeywell have all been placed on review, while DaimlerChrysler, Motorola, and Lucent Technologies were downgraded.

Currently, the Federal Reserve Bank's numbers are showing ABCP at about 45% of the entire CP market.

Further, more money market investors are moving into the ACBP market, because supply on the corporate side is so thin, which is driving in ACBP spreads. This might explain why an issuer like Ford, with its tier-one rating, might be finding the ACBP market a better deal.

The real spread killers for the CP market, however, have been concerns like the Pacific Gas & Electric, Mercury Finance, and Armstrong World, that went from investment-grade (in some cases, top tier) to default in a matter of weeks.

"The hiccups and notable events in the corporate market have not been duplicated in the ABCP market," Moody's Pilcer said. "It improves liquidity and pricing in the ABCP market."

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