Ford Credit Canada is preparing to issue about C$580.2 million ($434.1 million) in asset-backed notes—secured by fixed-rate, prime-quality retail auto loans—that will build up credit enhancement as the pool amortizes.
The deal, Ford Auto Securitization Trust II, Series 2023-A, replaces the Ford Auto Securitization Trust platform that was nearing the end of its legal life, according to a pre-sale report from Moody's Investors Service. Many of the new platform's terms are the same as the previous one, the rating agency said, and the current portfolio has a securitized amount of C$762.6 million.
DBRS Morningstar, which also expects to rate the deal, expects the transaction to close on April 25.
FAST II, 2023-A, as the deal is known, will repay investors through a sequential pay structure among classes A, B and C notes, which benefit from 5.25%, 2.25% and 0.25% of hard credit enhancement, respectively. While that is in place, the deal's other strengths are a stable performance history from Ford Credit Canada, which also serves as the servicer on the notes. BMO Nesbitt Burns, CIBC World Markets, Scotia Capital, RBC Dominion Securities and TD Securities are the lead underwriters on the transaction, according to Moody's.
On a weighted average (WA) basis, the card account holders have a FICO score of 778, which Moody's says is higher than previous FAST transactions that it has rated.
Moody's compared the present deal to FAST 2020, the last transaction that it rated and did notice a handful of credit challenges. While high quality borrowers do comprise the collateral pool, some 74.8% of the loans had original terms greater than 60 months, the rating agency said. That level is higher than 68.5% than the FAST 2020, Moody's said.
Moody's cited the direction of used car prices as another potential credit risk, even though used vehicles comprise only 7.6% of the collateral pool. Although used car prices had escalated during the COVID-19 pandemic, due to rising demand and supply chain shortages, those prices have begun to soften from their peak in early 2022. In any case, new vehicles comprise most of the collateral pool, at 92.4%, the rating agency noted.
Overall, the pool has a cumulative net loss expectation for the 2023-A is 0.90%, and its 'Aaa' stress is 5.50%. On average the loans in the pool have a remaining loan size of $48,876, with an APR of 3.37%.
Moody's expects to assign ratings of 'AAA' on the A and B notes; and 'Aa1' on the class C notes. DBRS says it will assign ratings of 'AAA' on the A-1 through A-3 notes; 'AA' on the class B notes and 'A' on the class C notes.
