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Ford Motor Credit adding pricier vehicles to ABS pool mix

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Ford Motor Credit’s second U.S. retail auto loan securitization in 2018 is one of its smallest of the last two years.

But the transaction's outsize average account balance shows the migration of Ford customers toward trucks and sport utility vehicles is still growing.

The $1.05 billion Ford Credit Auto Owner Trust 2018-B has the largest-ever average loan balance for a pool of Ford captive-finance originations: $28,374, a 6.6% increase from the $26,603 average of Ford Motor Credit’s first transaction of the year, a $1.72 billion issuance out of the Ford Motor Credit prime loan trust.

Ford’s previous five retail loan ABS deals (not including revolving securitizations) had average account balances below $26,000; average account balances were as small at $22,365 in early 2015, according to ratings agency presale reports.

“This trend is driven predominantly by higher vehicle pricing and a model mix comprising bigger-ticket trucks/SUVs/CUVs,” according to Fitch Ratings.

Ford’s latest transaction is among four prime-auto ABS deals that have launched in the marketplace this week, totaling more than $4 billion in new-deal issuance.

Reports from S&P Global Ratings and Fitch state that CarMax is issuing a $1.2 billion securitization of loans (potentially to be upsized to $1.5 billion) originated through the used-car superstore chain, while Nissan Motor Acceptance Corp's trust is issuing notes totaling $750 million, backed by lease receivables for the second time in 2018, according to presales from Moody’s and S&P Global Ratings.

GM Financial is sponsoring two series of bonds totaling $700 million that are being issued in three-year and four-four tranches, secured by receivables from franchise dealers paying down inventory finance lines forwarded by GMF.

Additionally, Daimler AG's Mercedes-Benz Financial Services Canada is marketing bonds in Canadian currency (CAN$455.2million, or $US349 million) backed by new-car loan collateral for its auto sales north of the border, according to S&P and DBRS.

Ford’s transaction includes a term notes offering of four triple-A rated tranches and two similarly investment-grade-rated subordinate classes.

The $375 million, three-year Class A-2a/2b tranches (representing 35.62% of the capital stack) will be split between fixed- and floating-rate notes, following by a Class A-3 notes tranche due April 2023 totaling $317 million and a $102.98 million Class A-4 tranche due March 2024. Those notes, along with a $205 million short-term money-market tranche (rated P-1 by Moody’s and F1+ by Fitch), are supported by 5.25% credit enhancement.

Senior note credit enhancement is unchanged from Ford's prior prime-auto ABS deal.

The $31.58 million Class B notes are rated Aa1 by Moody’s and AA+ by Fitch, while the $21.05 million Class C tranche carries a Moody’s Aa3 and a Fitch A+ rating.

Ford’s transaction involves 40,936 accounts (with a cumulative outstanding balance of $1.16 billion), which is well below that of transactions since 2017 in which Ford Motor Credit pooled between 55,385 (FCAOT 2017-B) and 78,146 (FCAOT 2017-C). In May, Ford collateralized 64,956 loans with a $1.72 billion balance.

In addition to higher car prices amid rising interest (3.46% vs. 2.71% for the counterpart 2017-B FCAOT transaction), the greater balance also reflects lighter seasoning of only 6.9 months compared to 8.2 months earlier this year and a 2017 seasoning range of 8.5 to 9.3 months.

The weighted average FICO is 739, up from 737 from the deal in May, with a weighted average loan-to-value ratio of 97.7%, in line with prior FCAOT transactions.

Over 85% of vehicles were trucks, SUVs or cross-overs, the highest concentration of light-duty truck vehicles in an FCAOT transaction to date.

Moody’s Investors Service has estimated losses at 1%, unrated compared to its most recent FCAOT deal analysis (2017-B), while Fitch has a loss proxy of 1.6%, unchanged from its ratings on Ford Motor Credit’s prior transaction.

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Prime auto ABS Ford Motor Credit Nissan Motor Acceptance Corp GM Financial
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