The credit profile of obligors in Ford Motor Credit's new $1.06 billion vehicle-lease securitization are slightly better than those of its previous deal, continuing a recent trend.
But the concentration of SUVs and light-duty trucks remains high, putting the deal at the risk of future changes in consumer preferences that could impact used-vehicle prices.
Ford Credit Auto Lease Trust (FCALT) 2018A is backed by 54,756 leases with an initial securitization value of $1.25 billion and a vehicle pool with a base residual value of $943.3 million, according to Moody’s Investors Service and S&P Global Ratings.
The weighted average FICO of the lessees is 754, the highest yet among Ford’s recent securitizations and above that of the 751 for Ford’s
While the 75.7% concentration of trucks and SUVs is down slightly from the 2017-B pool, it remains above of 69.3%-70.3% in securitizations prior to 2017. Analysts are concerned the deal’s heavy concentration in SUVs and light-duty trucks leave the pool vulnerable to lower-than-expected values on return-lease vehicles if future high gas prices cause some price shocks to their aftermarket values.
But the mix reflect the popularity of its F150 light-duty trucks and line of SUV models such as the Escape, Explorer and Edge. Price declines have primarily impacted passenger vehicles, in which slowing consumer demand is creating a glut of unwanted sedans and hatchbacks on dealer lots.
Passenger cars fell to 37.8% of all Ford sales in 2017, down from a 41.5% share in 2016. Ford's most popular passenger sedan, the Fusion (which garnered 18.4% of the new lease pool, representing the fourth-highest concentration), saw 2017 sales fall a whopping 17%.
Moody’s application of a 36.5% haircut to the issuer’s market residual values of the due to industrywide trends in falling used-car prices.
The capital stack of the FCALT 2018-A transaction includes a $191 million money market tranche rated A-1 by S&P Global and P-1 by Moody’s Investors Service. A two-year, $450 million A-2 bond class is split between fixed- and floating-rate tranches; a $280 million Class A-3 notes tranche due 2021 and a Class A-4, three-year bond tranche totaling $79 million. All of the senior term notes carry preliminary triple-A ratings from Moody’s and S&P Global.
The senior Class A notes being issued in the deal benefit from 27.4% credit enhancement, including 8.7% subordination, 11.2% overcollateralization ($139.8 million) building to a target of 13.7%, and a 0.5% non-amortizing reserve account.
The three-year subordinate Class B notes are double-A rated, and sized at $56.2 million. An unrated Class C tranche totals $52.4 million.
Among changes from the prior transaction is a lower weighted average loan-to-value ratio to 90.8% from 92.4%; and a shift to fewer shorter-term leases. The shift of original lease terms from 13-24 months decreased to 6.6% from 6.9%, and the lease terms of 37-39 months increased to 13.7% from 13.2% of the 2018-B pool.
Moody’s also credits Ford with spreading the lease maturities across the life of the deal, at a lower concentration that peer lease securitizations. The five highest quarterly concentrations make up only 69% of the entire securitized value of the pool, Moody’s notes.
Ford’s managed lease portfolio has over 1 billion contracts with total outstanding balances of $25.5 billion, with an average contract of $26,586.
The net losses were 0.38% in 2017, up from 0.33% in 2016. Delinquencies held steady at 0.87%, although return rates have steadily increased since 2015 – current levels are at 76%, compared with 59.9% in 2012.
Estimated credit losses for the pool range from 0.75%-0.85% by S&P. Moody’s has expected losses of 0.5%, a level above or equal to all prior FCALT transactions.
