Ford Motor Credit (FMC) is sponsoring its next prime consumer vehicle-lease securitization with one of the lender’s largest-ever pool concentrations of trucks and sport utility/crossover vehicles.
The $1.1 billion Ford Credit Auto Lease Trust (FCALT) 2019-A has an 83.2% pool value concentration in pickup trucks, minivans and SUV/CUV vehicles, continuing a trend in recent years of waning sales and leases of passenger sedans that is rapidly shrinking the percentage of cars within the collateral pools from all of Ford’s securitization pools (including lease, loan and dealer floorplan issues).
The truck/utility vehicle pool share is an increase from 82.2% and 75.7% in the two previous FCALT deals that Ford Motor Credit placed in the asset-backed market last year.
Over 54% of the pool's assets consist of SUV/CUV models. An unprecedented 23% share of the pool is tied to one model – the popular Ford F-150, according to Fitch Ratings, which exposes the deal to new avenues of risks such as recalls.
The concentrations do not appear to be raising major concerns with ratings agencies, even against possible headwinds of future rising fuel prices or changes in consumer demand.
Neither Fitch nor S&P Global Ratings affixed any haircuts to the expected future market values of the vehicles because of excess model or vehicle-type concentrations, or worries about the impact of future oil price spikes would mean to these larger, expensive vehicles.
“The expectation is that strong residual performance, improvements in model line-up and fuel efficiency help mitigate any future risks of higher gas prices,” Fitch’s report stated.
FMC is buoyed by improving performance in its leasing portfolio, including lower vehicle return rates from customers and higher-than-average resale value returns on the give-back vehicles. Ford Credit reported a residual gain on returned vehicles of 5.3% above what was originally forecast in the industrywide Automotive Leasing Guide projections – the best performance in five years for Ford, according to S&P.
Ford Motor Credit’s managed lease portfolio included 1.02 million contracts totaling nearly $27.5 billion at year's end. Net losses have declined to 0.31% from 0.38% the year prior. Total delinquencies were down to 0.82% from 0.87% at year’s end 2017.
The capital stack for Ford's 16th public auto lease securitization includes a Class A-2 tranche of $376 million in fixed- and floating-rate notes due September 2021 (with the fixed-rate tranche proposed at a minimum $188 million).
The Class A-3 notes tranche due May 2022 totals $348 million, and a Class A-4 tranche due June 2022 has $78 million in notes. All the notes carry preliminary triple-A ratings from Fitch and S&P, and are supported by 20.15% credit enhancement (unchanged from Ford’s prior lease securitization in 2018).
Along with a $198 million money-market tranche with an F1+ Fitch rating and an A-1+ rating from S&P, the capital stack also features a double-A rated Class B notes tranche totaling $56.18 million, due July 2022, and an unrated Class C tranche of $52.43 million in notes due October 2023.
The notes will be funded by the monthly payment receivables from 52,601 contracts as well as the resale value of returned vehicles. They are backed by an exchange note that, in turn, is backed by the pool of leases with a securitization value of $1.25 billion. The value is derived from the present value of remaining lease payments plus the vehicle’s original value (either the lower of Ford’s own stated residual value figure, or the estimated established by ALG).
The vehicles have average original values of $23,734, lower than the $23,956 in FCALT’s previous transaction. Most of the leases (92%) have 36-39-month original terms.
Ford’s leasing customers in the pool have a weighted average FICO of 754. Over 51% had FICOs greater than 749, which Fitch noted is the highest from an FCALT issuance to date.
S&P is maintaining the 0.8% base-case credit loss that it also projected for FCALT 2018-B. Fitch expects net credit losses for 2019-A to be 1.20% of the book value of the pool.
Citigroup, JPMorgan, Wells Fargo, Mizuho Securities and HSBC were underwriters on the deal.
