Ford Motor Co.'s European lending arm, FCE Bank plans to issue €543.5 million ($745 million) of securities backed by German auto loan receivables.

FCE Bank has securitized auto loan receivables since 1997 in various European jurisdictions under the Globaldrive brand.

The transaction, Globaldrive Auto Receivables 2014-A B.V., has been assigned preliminary ratings by Fitch Ratings and Standard & Poor’s.

On offer are €500 million of ‘AAA’/ ‘AAA’ rated Class A, floating-rate notes with credit enhancement at 8.72%; and €16.3 million of ‘AA’ / ‘AA’ rated Class B, fixed-rate notes with credit enhancement at 5.72%. All of the notes are due April 20, 2022.

The trust will also issue €27.2 of class C notes that will not be rated.

HSBC Bank, Llyods Bank, Barclays Bank and Bank of America Merrill Lynch are the deal's joint lead managers.

The pool of collatearl is comprised of two types of loans, which differ in repayment profile and original term. The "standard" loans have an original term of up to 72 months and generally are fully amortizing. The "trade cycle management" loans have an original term of up to 48 months and contain a large balloon payment (approximately 50%) due at the end of the contract term.

About 70% of the loans in the pool have this balloon payment at maturity, which could increase default risk if the market value of the car declines significantly, according to S&P.

Borrowers can settle the final installment payment either by paying in cash; returning the vehicle to the car dealer for an agreed purchase price that equals the balloon payment; or refinancing the balloon payment.  

However S&P warned that borrowers are still on the hook to repay the loan to FCE Bank, even if the dealer can’t. “If a dealer is insolvent and unable to honor the repurchase obligation, this could lead to a payment shock for the borrower,” according to the ratings agency. “This would increase the default risk for those borrowers if they cannot sell the car at a price high enough to account for the balloon payment.”

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.