Trucks keep driving the business of Ford Motor Co., and are taking a stronger hold on the securitizations sponsored by its captive finance arm, as well.
According to presale reports, over 80% of the collateral for the $2 billion transaction, Ford Credit Auto Owner Trust (FCAOT) 2017,- is a truck, sport utility vehicle or crossover. It’s indicative of the industrywide trend of buyers looking past passenger cars in favor of larger utility vehicles, which helped fuel Ford’s third-quarter earnings growth to $1.45 billion, as reported last week.
But the deal also includes a larger portion of extended 61- to 72-month term loans that help borrowers stretch to buy pricier vehicles. There's also the historical precedent that future higher fuel prices could drag down truck and SUV recovery rates in asset-backed transactions.
FCAOT 2017-C is issuing four tranches of senior notes and two subordinate note classes totaling $1.85 billion.
The senior structure includes term notes in the A-2, A-3 and A-4 tranches total $1.47 billion, as well as a money-market A-1 series of bonds totaling $278.6 million. All of the Class A notes have initial hard credit enhancement of 5.54%, similar to prior Ford deals.
The Class A term notes have received preliminary triple-A ratings from Fitch Ratings and S&P Global Ratings.
One primary difference in the structure of the deal is a slight increase in the yield supplement overcollateralization account, which is included to make up for manufacturer APR discounts to well-qualified borrowers. The YSOA is up to 6.3% of the pool, compared to 6% in FCAOT 2017-B.
The most significant, however, may be with the surge in truck and SUVs in the collateral mix. The Ford F-150 truck model makes up 25.5% of the pool, which is slightly above recent deals and on par with 2014-vintage deals. But the Ford Escape and Explorer SUVs continue to take up a larger share of the mix as well, while Ford’s most popular passenger vehicle, the Fusion, remains out of the top three model concentration for the fourth consecutive FCAOT transaction.
The $2 billion collateral pool of receivables, Ford Motor Credit’s third of the year on its Reg AB II compliant shelf, is the largest collection of loans is the most of any FCAOT transaction in the last three years. The second-largest deal in that period was $1.94 billion in loans collected for FCAOT’s 2015-B transaction.
The 2017-C total is more than $587 million above FCAOT’s previous deal.
As far as collateral changes to its prior deal, Ford’s weighted average FICO increased to 739 from 734; the FICO of loans with extended 61-72 month terms increased to 720 from 714. Overall, loans with terms over 60 months increased to 58.15% from 56.98%.
FCAOT 2017-C does not include loans with terms greater than 72 months.
The weighted average LTV decreased to 97.32% from 98.56% from the previous deal; new vehicles remained 89.7% of the collateral pool.
Like other auto ABS issuers, FCAOT has chosen to exclude loans that include billing addresses of owners in regions impacted by Hurricanes Harvey and Irma.
The company has also maintained low, stable levels of delinquencies in its $44.1 billion loan portfolio, 1.57% for the year through Sept. 30 compared to 1.59% the year prior. But the net charge-offs have increased to 0.58%, up from 0.48% through September 2016, continuing a trend of net loss increases since 2013.
Cumulative net losses for the new portfolio are estimated at 2.2% by S&P. According to S&P, Ford’s 2014 and early 2015 vintage auto-loan securitizations have performed better than original expectations, with CNLs of between 0.6-0.95%.
While late 2015 and 2016 vintages have had higher loss levels, those deals’ expectations are still performing better than initial expectations, according to S&P.
Fitch, while not providing a CNL expectation, modeled a loss proxy of 1.55%.
The securitization comes nearly two weeks after Ford Motor Co. reported improved third-quarter sales figures year-over-year. The automaker reported quarterly profits of $1.56 billion, up from $957 million through the first nine months of 2016, driven by a 14% year-over-year gain in sales for the F-150.
