The first ABS offering of the year, from Ford Motor Credit, was a gargantuan success, setting a single-issue volume record and leading to a structural development that may be the hottest thing to hit the sector in 2002. The $5.78 billion 2002-A offering was increased in size upon launching, as a result of enormous demand, driven by the option of both fixed- and floating-rate paper given to investors, who in turn were juiced to get the allocations they sought.
Also, the offering raised eyebrows with the rare triple-joint-lead of Banc One, Credit Suisse First Boston and Deutsche Banc, as did the European flavor of the syndicate group, as ABN AMRO, Barclays Capital, Commerzbank and UBS Warburg signed on as co-managers.
With no major auto-loan deals since mid-December, the investor community had enough pent-up demand to drive an already large offering - $4.7 billion prior to the increase - even larger. "This speaks to the investor comfort in Ford as well as in prime auto paper in general," said one syndicate source. "There was a lot of crossover interest from the unsecured debt side. Everybody loves Ford."
In a minor experiment, the structure offered buyers the choice of fixed- or floating-rate notes for both one-year and two-year classes, an idea Ford had previously considered but never utilized until now. "We debated offering this with our last auto loan deal, 2001-E, but wanted to do more homework," said David Kimball, head of securitization for Ford. John McWilliam, director of auto securitization at CSFB, concurred adding, "We went out with the deliberate intention of tailoring the tranche sizes to suit investor demand. And in turn, the size was driven by the structure."
Both signaled that this was something the market would see in future offerings, with McWilliams saying we will see this from other issuers.
The success also addressed investor questions regarding underwriting standards of captive lenders in general. John Prestly, vice president at Hartford Investment Management Co. said his main question was "to what extent, if any, the captives, including but not specifically Ford, pressured by lagging sales and a recessionary environment, relaxed loan underwriting standards."
But Jeff Salmon of Barclays Capital, a co-manager on the offering, noted that the captives learned their lesson in lowering underwriting standards in the 90s and the ultimate result was an increase in funding costs. "The captives learned the balance between underwriting loans and selling cars," he said.
Also, less than 1% of this deal contained zero-percent or subvention loans, noted CSFB's McWilliams, and the average seasoning of the pool was eight months. This fact shelters it from any pre-pay concerns, as those who bought cars early in 2001, were unlikely to trade in their relatively unseasoned cars.
All agreed this deal was a blowout. It increased in size and still priced at the tight end of talk, noted Brian Wiele head of ABS syndicate for joint lead Deutsche Banc, who added that, "With the exception of a few Asian accounts new to the ABS market, participation was dominated by U.S. accounts."
While Alex Roever, head of ABS research at Banc One hesitated to hand out deal of the year honors this early in 2002 (See Deal of the year, p.5), "There was a time not too long ago when I would have doubted a deal of this size could be completed easily, Roever said. "This shows the maturity of the ABS market heading into 2002, not only did the market just absorb this supply, it priced at tight levels and left investors wanting more."