Ford Motor Credit is introducing an unprecedented 10-year revolving period with its fourth issuance from its master trust floorplan shelf that provides inventory financing for Ford-franchised dealers.
Ford Credit Floorplan Master Owner Trust A, Series 2018-4 is a $576.67 million transaction that allows the trust to assign new assets from the captive lender's $18 billion portfolio of over 3,100 dealer accounts until at least May 2028.
By comparison, previous Ford Credit floorplan offerings had revolving periods between three and seven years, according to S&P Global Ratings.
FMC’s most recent floorplan securitization in November included only a three-year revolver. That is the primary reason the new transaction has a higher expected loss figure of 22.73%, compared to the 16.9%-19% range in recent issues from Ford floorplan shelf, according to Fitch Ratings. S&P’s projected net loss over the life of the transaction is 22.2%.
Investors incur losses when recoveries on unsold inventory fall short; the portfolio itself has not incurred losses since 2009 from any dealer defaults.
Both S&P and Fitch have assigned preliminary AAA ratings to the lone tranche being publicly offered this time around: a $500 million Class A notes tranche with 23.35% credit enhancement, composed of 11.5% subordination, 13.5% overcollateralization and a 0.35% reserve account.
Although the subordination level is slightly higher than prior transactions that ranged from 12%-12.5%, the reserve account is less than half of the accounts for series 2018-2 and prior (0.88%). The CE is slightly lower than prior series issues, which have been 24.38% for the Class A tranche since 2016.
The transaction excludes a floating-rate tranche that was part of November’s $1.325 billion master trust issuance.
The majority of the new series is secured by new vehicles financed at franchised Ford dealership and AutoNation car lots. New-car inventory financing made up 91.43% of the trust portfolio as of Sept. 30.
Through the floorplan shelf, dealers primarily finance wholesale new-auto purchases from the Ford Motor Co. The trust is repaid for each car in full when the vehicle is sold at the retail level.
Dealers currently repay the trust at a monthly payment rate of 40.2% (September 2018), consistent with the 2017 average rate of 40.5%. That is below the average rates that peaked at 44.6% in 2015, but well above the 25% trigger rate threshold that would require accelerated principal note payments to investors.
The MPR rate is a carefully monitored performance metric measuring how well dealers are managing inventory turnover and sales.
Ford Credit has tapped the securitization market for 45 bond issues since 1992 to fund floorplan receivables, and has 18 term series issues as well as two variable-funding notes series outstanding.
