On Friday, April 8, as many in the financial world were fixated on the second round of The Master's, Ford Motor Co. was lowering its earnings outlook for the year and pulling in the reins on the $3 billion auto ABS deal it introduced to the market the previous day.

Announced on Thursday, April 7, the series 2005-B transaction was expected to price on Friday morning, however, a source close to the deal said Ford officials held off when they found out the company's negative corporate earnings outlook was to be released later that day. Deutsche Bank Securities, JPMorgan Securities and Lehman Brothers acted as joint-lead managers on the offering.

"Ford felt that would be disingenuous to investors" to price the deal an hour before the earnings outlook was released, said the source. Instead, Ford gave investors the weekend to absorb the news and priced the deal that Monday. Ford announced it expects to pay shareholders $1.25 to $1.50 per share, down from $1.75 to $1.90 per share.

Both the $990 million one-year and $881 million two-year tranches priced six basis points above EDSF, while the $470 million three-year tranche priced at nine basis points over swaps. The source said the delayed pricing ended up costing Ford two basis points for the senior tranches and as much as five basis points for the subordinated tranches.

Initial price talk for the offering was set as low as three basis points over EDSF for the 0.84-year A2 tranche, one basis point over EDSF for the 1.84-year A3 tranche, and three basis points over swaps for the 2.89-year A4 tranche. By that measure, Ford lost five and six basis points on the two- and three-year tranches, respectively.

According to the source, on Friday afternoon the two year tranche of the deal was receiving a disproportionate amount of investor interest versus the three-year tranche. At that point, the syndicate considered increasing the two-year tranche and lengthening its term slightly, to accommodate investors, while decreasing the size of the three-year. By the time Monday rolled around, however, the re-sizing was not necessary, as interest redistributed enough so the deal could proceed as it was originally structured.

"There was a lot of uncertainty among investors. It was sort of radio-silence' over the weekend," added the source, noting that while some investors dropped out of the deal, others stepped in to compensate. The deal ended up still being oversubscribed, with most investors interested in the one- and two-year tranches. A total of 70 investors participated in the deal.

New-issue spreads in the auto sector have widened anywhere from two to five basis points across the board in recent weeks as General Motors Corp. roiled the debt markets by lowering its earnings guidance by up to as much as four dollars per share. The news caused GM to be downgraded and caused a re-pricing of the entire corporate debt market. Corporate issues such as earnings and ratings rarely have material adverse effects on ABS deal performance, but spreads can still widen purely on investor concerns.

Copyright 2005 Thomson Media Inc. All Rights Reserved.

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