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Ford launches $841M prime auto ABS deal in wake of recent downgrade

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Ford Motor Credit has emerged with a new offering of auto-loan backed securities, joining a select group of prime auto ABS issuers confident in drawing in investors despite a gloomy, pandemic-afflicted outlook for the automotive industry.

Ford Credit Auto Owner Trust 2020-A is FMC’s first sponsored auto-loan transaction for 2020, and its first since parent firm Ford Motor Co.’s debt rating was lowered to junk by S&P Global Ratings in March (and six months after Ford and its captive-finance subsidiary fell to a non-investment grade rating from Moody’s).

According to presale reports, the deal also features the smallest pool of loans FMC has served up to the ABS market in several years: the $841.81 million notes offering is backed by $914.2 million in aggregate balances across 51,620 loans for new and used vehicles financed at Ford Motor Co-franchised dealerships. (Ford’s previous deal, FCAOT 2019-C, pooled $1.42 billion in loans).

While the pool of borrowers shrank in comparison to FMC’s previous securitization last December, the credit quality remains strong with a weighted average FICO of 743 and a low WA APR of 3.03% on loans with average balances of $26,746. Over 53.4% of the borrowers had FICOs exceeding 700.

Over 71% of the pool contains loans with manufacturer incentives, the highest level in 10 years for a Ford auto-loan securitization – a sign of the increase use of subvented contracts to attract buyers amid the slowdown in auto sales from the COVID-19 outbreak.

Another sign of the impact of the coronavirus: a swelling number of contracts managed by Ford Credit that are receiving “goodwill” payment extensions to certain borrowers, according to Fitch Ratings. Over 6% of the loans included in FCAOT 2020-A have had payment extensions.

Fitch (which still rates FMC at investment-grade status, BBB-) and Moody’s Investors Service have each assigned preliminary triple-A ratings to three tranches of Class A term notes on Monday, including a $274.5 million Class A-2 tranche due October 2022, a $314.5 million Class A-3 tranche due August 2024 and a $70.7 million Class A-4 tranche maturing in July 2025.

A $140 million money-market tranche has received the highest short-term ratings from each agency: F1+ from Fitch, P-1 from Moody’s.

Fitch has increased credit enhancement to 6% for the senior notes, up from 5.25% on its previous deal. The largest portion of the increase was a beefed-up reserve account now accounting for 1% of the total pool balance compared to 0.25% in recent deals.

Ford joins General Motors, Hyundai, Nissan, Toyota, and used-car retail chain CarMax in offering prime auto ABS deals in the past month. Issuance has been bouyed by the Federal Reserve's launch of a new iteration of its Term Asset-Backed Securities Loan Facility program designed to maintain liquidity in asset-backed markets for consumer-debt products such as auto and student loans.

Ford's auto ABS plans are also unhindered by the recent downgrade watch placed on several of its floorplan securitizations providing financing for dealer inventory financing.

The deal was led by JPMorgan, with co-underwriting offered by BNP Paribas, Deutsche Bank, RBC Capital Markets, Scotiabank and SMBC Nikko.

As of March 31, Ford Motor Credit has an outstanding retail auto-loan portfolio of approximately $46.8 billion, according to Moody’s.

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