Ford Motor Credit Co. (FMCC) is in the market with a transaction called Ford Upgrade Exchange Linked Notes Series 2011-1 (FUEL notes).

This transaction will be backed mostly by the '(P)A2 (sf)'-rated ABS issued by Ford Credit Auto Owner Trust 2011-SRR1.

FMCC will be responsible for certain payments that are not covered by the ABS notes. The lead underwrtiter on the transaction is Bank of America Merrill Lynch. Other underwriters on the offering are Citigroup Global Markets and Goldman Sachs.

A crucial structural feature of this FUEL transaction, according to a Moody's Investors Service preasale, is the mandatory exchange of the FUEL notes for unsecured notes that wiill be issued by FMCC after achieving a senior unsecured investment grade rating by any two of the top three rating agencies  Moody's,  Strandard & Poor's or Fitch Ratings.

According to the Moody’s presale report, the agency now rates FMCC 'Ba2' with a positive outlook. Other unique features of the FUEL notes are make-whole payments and step-up amounts, according to Moody's. These features are designed to match typical unsecured corporate bond features and to pay investors for taking reinvestment and extension risks. The FUEL trust can also offer to sell the underlying ABS notes back to FMCC under certain conditions.

The main purpose of the deal, according to FMCC, is to free up assets formerly pledged to secure the ABS notes upon the conditional mandatory exchange.

The '(P)Baa2 (sf)' rating for the FUEL notes is mainly based on the weighted probability that the FUEL notes investor has either a '(P) A2 (sf)'-rated promise of the ABS notes if no exchange happens, or, at least a 'Baa3' unsecured promise of payment if there's an exchange. 

Moody's also looked at the legal implications of recourse to FMCC in its many forms, such as the make-whole payments, the step-up amounts, and the ability to sell the ABS notes back to FMCC under certain conditions.

For futher preliminary details on the transaction, please click the link below from the ASR Scorecards database.

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.