By all accounts, ABS had a stellar run last year, with issuance a record $350 billion. And no deal better symbolizes the newfound ubiquity, depth and liquidity of asset-backeds than the the whopping $5 billion Ford Credit Floorplan Master Owner Trust 2001, series 1 and 2.
"This transaction showed that the ABS market can digest real volume," says one senior banker not associated with the transaction. "And it highlights the tiering that is taking place in the market now. Frequent issuers and strong credits such as {Ford Motor Credit} are at a premium; their deals deserve to trade tighter."
The July 18 dealer floorplan issue from Ford, led solely by Lehman Brothers, turned heads in the market-not only for its gargantuan size, which rivaled some corporate offerings this year, but also for the embattled issuer's timing in executing the deal and its decision to access the securitization markets with a dealer floorplan transaction, as opposed to a plain vanilla auto deal.
"This was an enormous deal," says Jon Prestley, an ABS investor at Hartford Investment Management Co. "Regardless of whether one might consider it generic because the issuer was Ford, this was an enormous deal for the ABS market."
The issuance was Ford's first floorplan transaction since 1997 and the inaugural issuance from the company's new master owner trust, which was structured by Lehman Brothers. The auto company, on the verge of receiving a corporate-debt downgrade, was very aware of its perception in the market as it continued to suffer the shakeout from the recall of Firestone tires and a $1.56 billion deficit.
With spreads on the company's unsecured debt out of whack, Ford, like many auto manufacturers recently, decided to pursue ABS programs more vigorously in 2001.
In the end, the Ford deal accounted for more than half of the entire dealer-floorplan ABS market last year. Moreover, it was a strategic hat trick for the company. With more than $18 billion in retail (auto loan-backed) ABS paper in the market in 2000, and almost as much issued in 2001, the level of Ford retail paper circulating was reaching the saturation point. "They were running the risk of having almost $20 billion of retail paper in the market for 2001," says Alex Roever, head of ABS research at Banc One Capital Markets, a co-manager on the deal. "With this floorplan deal, they were able to access a whole different set of investors with a higher dollar volume of product. They came up with a better funding mix for themselves."
Interestingly, the transaction was actually in two parts. Though issued off of the same trust and the same vehicle, there were actually two series, both offered on the same day. One of the series carried a three-year maturity, and the other carried a five-year; they were originally sized at $2 billion and $1 billion, respectively.
However, there was so much demand for it that the transaction was upsized to $5 billion: $3 billion for the first series and $2 billion for the second. The upsizing was done with no adverse impact on pricing, and most of the market viewed the offering as a single, four-tranche offering, as both offerings were led by Lehman Brothers and priced concurrently.
"Not only was there significant demand for floorplan paper, but there was demand for floating-rate paper, so this issue had scarcity value," says Chris Estephan, one of the Lehman investment bankers who worked on the project, a mandate that had been brewing, off and on, for nearly a year. "This was a chance for investors to tap into an asset base diversifying away from a consumer credit. Moreover, it was the first time a master owner trust structure had been used for a floorplan deal."
Until this transaction, in fact, the innovative master owner trust structure had been used exclusively by credit card issuers. These structures combine the best features of a master trust (asset and liability flexibility) with the best features of an owner trust (notes, as opposed to certificates, as the legal form of the liabilities, debt-for-tax status and ERISA eligibility).
Perhaps more importantly, however, it gives the issuer the ability to delink credit enhancement by eliminating the requirement for the simultaneous issuance of senior and subordinate securities, as subordinate securities can be issued at different times and with different maturities than senior notes.
The message in 2001 was clear: no matter how innovative or newfangled some ABS deals are-no matter how offbeat the structure-"large, liquid and plain vanilla" is still the driving force behind asset-backed securities. And the tastes of this mature market are not expected to change anytime soon
