The passenger vehicles slated to disappear from Ford’s 2019 model lineup have already fading away in Ford Motor Credit’s new $1.58 billion prime auto-loan securitization.
The $1.58 billion Ford Credit Auto Owner Trust (FCAOT) 2018-A has a concentration of 84.7% light-duty trucks and SUVs, the highest in the nearly 30 years that Ford Motor’s captive-finance arm has sold bonds backed by retail installment contract receivables.
Three years ago, loans tied to passenger vehicles including the Ford Focus and Fusion made up 25% of the collateral for FCAOT portfolios. The level declined to just 20% in the
While the concentrations are representative of the level of consumer interest in the company’s F-150 trucks and its lineup of Ford Explorer and Escape SUVs, they also present a higher risk to FCAOT deals, according to Fitch Ratings.
“Current low fuel prices are supporting demand and values of larger trucks/SUVs/CUVs, and are thus currently attractive to consumers to purchase,” Fitch stated in a presale report. “However, such a high concentration could affect recovery rates in the future as vehicle values are tied to fuel prices were they to rise.”
Ford, which reported a 7% increase in first-quarter revenues to $42 billion last month, also announced the phasing out of all passenger vehicle models from 2019-model production lines with the exception of the Ford Mustang and a Ford Focus crossover. Absent those models, Ford sedans made up only 11% of the collateral for FCAOT 2018-A.
The new deal is first static pool securitization from Ford's auto-owner trust platform for 2018, but in January the company
Ford Motor Credit will market four classes of senior notes and two subordinate classes, similar to recent FCAOT transactions. Fitch and S&P Global Ratings both expect to assign triple-A ratings to the $543.3 million in three-year Class A-2 notes to be split between fixed- and floating-rate tranches, the $547.3 million four-year Class A-3 notes, and the $130.2 million Class A-4 notes due October 2023.
A money-market tranche totaling $279.2 million is rated A-1+ by S&P and F1+ by Fitch. The subordinate Class B notes ($47.4 million) are AA+ rated while the Class C notes totaling $31.6 million are AA rated by S&P and A+ by Fitch.
According to Fitch and S&P, little has changed in the collateral quality since FCAOT 2017-3, other than a slight decline in average FICOs to 737 from 739, the average APR rose to 3.55% from 3.06% and the percentage of loans with original terms between 61-72 months decreased to 57.6% from 58.2%.
Credit enhancement on the Class A notes declined to 5.25% from 5.54% due to a decrease in the transaction’s reserve account to 0.25%. The yield supplement overcollateralization account was boosted to 9.45% from 8.22% to cover synthetically low consumer interest rates offered by the manufacturer for sales incentives to qualified buyers.
The portfolio collateral consists of 64,956 loans with a principal balance of $1.72 billion.
Expected net losses remain virtually unchanged from prior FCAOT transactions, which have been performing with lower-than-expected loss levels among the 2014-2017-vintage deals. S&P assigned a 1-1.2% expected net loss range, and Fitch applied a 1.6% base-case net loss proxy in its analysis of the deal (up slightly from 1.55% from November).
The deal is Ford’s eighth under its Reg II AB-compliant shelf.
The transaction is expected to close May 22.
