Ford Credit’s German affiliate, FCE Bank, is securitizing €684.8 million (US$813.7 million) in prime auto loans originated through dealerships in that country.

Moody’s Investors Service and S&P Global Ratings have assigned preliminary triple-A ratings to €630 million in senior notes to be issued by Globaldrive Auto Receivables 2017-A B.V.

The Class A notes have credit enhancement of 8.71%. The portfolio also includes an expected annual excess spread of 1.9%.

Ford Focus models on display at the IAA Frankfurt Motor Show on Tuesday.
Ford Focus models on display at the IAA Frankfurt Motor Show on Tuesday. Bloomberg

The capital stack also includes €20.5 million in Class B notes with a provisional Aa2 Moody’s rating and an AA rating from S&P. The most subordinate Class C notes tranche is sized at €34.3 million is unrated, representing a risk-retention stake being held by the sponsor.

Moody’s and S&P expect a cumulative default rate of approximately 2.4% over the deal’s expected weighted average life of 2.5 years. That's in line with peer-group securitizations from BMW and Mercedes-Benz.

The deal is a static cash transaction, in which no new assets will be sold to the special-purpose vehicle.

The portfolio includes 41,399 mostly low-interest loans (the range is from zero to 2%) originated by FCE, a UK-regulated bank operating through its German branch with €4.4 billion in assets. The loans went to 39,698 borrowers, primarily for new cars that make up 81.55% of the pool’s assets.

FCE has sponsored 20 publicly rated auto loan/lease transactions in Germany since 2007. The latest completed last September, was upsized to €619.5 million.

The loans backing the latest deal are seasoned an average of 6.6 months, with 3.4 years remaining (most loans in the pool have between three and five-year maturities). Most of the loans are to private individuals (88%) and a majority (75%) are “trade cycle management” (TCM) auto loans that include a vehicle buy-back arrangement with a dealer, similar to a U.S. auto lease.

Typical of German auto securitizations, many of the loans repay the bulk of principal in a final, balloon payments (75.1% of the pool). The largest maturities are concentrated after November 2020, when more than 45% of the pool’s loans will mature.

Borrowers under TCM arrangements remain liable for the final balloon installment, which may not be fully covered in the sell-back to the dealer if the vehicle has excess mileage or wear. The average balloon payment is scheduled to be over 47% of the final loan balance, according to the reports.

The average outstanding loan/lease balance is €16,541, with a weighted average loan-to-value of 84.91%.

The presale reports indicate the pool has exposure to diesel-engine cars, but do not divulge the number of loans against them. Many European countries and cities have proposed restrictions on diesel vehicles, from applying higher emission standards to the outright ban on their use in heavily populated metro areas, including in England, France and Germany.

Joint arrangers on the deal include Banca IMI, Commerzbank AG, Lloyds Bank and Société Générale.

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