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 i
Ford's auto ABS plans are also unhindered by the recent downgrade watch placed on
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.
