Ford maintains strong truck, SUV concentrations in $1B lease ABS
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 previous lease transaction from last October (FCALT 2017-B). The new deal is the fifth consecutive lease securitization by Ford to feature increased in WA FICO pool scores.
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.