Ford Motor Credit Co.’s latest securitization has more exposure to longer-term loans than any of the sponsor's previous deals, according to Fitch Ratings.
More than half of Ford Credit Auto Owner Trust 2016-A’s pool (57.1%) is comprised of loans with terms of 61 months or more.
The increase in longer-term loans is part of broader trend in both auto lending and auto loan securitization. For example, in the last two prime auto loan deals rated by Fitch, Hyndai's HART 2015-B and World Omni's WOART 2015-B, loans with terms greater than 61 months comprised 59% and 64% of their respective transaction’s pool. In Ford’s previous auto loan transaction, 2015-C, 52.5% of the pool was comprised of these loans.
Loans with original terms of 60 months or more can lower a borrower's monthly payment and are sometimes used to facilitate the purchase of a car the borrower might otherwise not be able to afford. The loans are considered riskier because the borrower spends a longer time "underwater" on the loan, owing more than the vehicle is worth. This exposes investors to higher loss severity if the obligor defaults.
In total, Ford plans to sells $1.05 billion in prime auto loan backed securities. Credit Suisse in the lead manager,
The trust will offer fixed- and floating-rate bonds totaling $771.8 million that are rated ‘AAA’ by Fitch Ratings. These senior bonds have different maturity date; the class A-2A and A-2 B notes mature on Dec. 15, 2018; the class A-3 notes mature on July 15, 2020; and the class A-4 notes mature on June 15, 2021. The notes benefit from credit support of 5.54%.
At the subordinate level, the trust will offer $31.5 million of ‘AA’ rated class B notes that mature on July 15, 2021 and benefit from credit support if 2.54%. Also on offer are $21 million of ‘A’ rated class C notes that mature on July 22, 2022.
In many respects, the 2016-A pool is consistent with that of prior deals, with a weighted average FICO score of 734 and 89.5% of loans financing the purchase of new vehicles. Loans in pool have a weighted average seasoning of seven months with a remaining 57.89 months of payments.