Ford Motor Credit Issues Second $1B Auto ABS Transaction

Ford Motor Credit issued its second auto loan ABS transaction of the year with a $1.05 billion pool, according to Moody’s Investors Service. With the transaction, the captive finance arm’s total 2018 securitized portfolio is $1.1 billion while its auto loan portfolio totals $46.2 billion.

Ford Credit’s latest transaction represents the most substantial average loan balance compared with the captive’s previous pools. The average remaining loan size increased by 11.4% to $28,374, compared with $25,465 during the captive’s second transaction of 2017.

The transaction has a higher weighted-average FICO score at 739 with 39% of its pool made up of loans with FICO scores higher than 749 — reflecting one of the leading credit strengths behind the transaction and “Ford Credit’s prudent underwriting practices,” Moody’s notes in the pre-sale report.

However, a slight deterioration in performance of Ford Credit’s 2016 and 2017 transactions have higher cumulative net losses than transactions issued in 2014 and 2015, causing some potential risk with the newest collateral.

Additionally, the increasing proportion of longer-term loans is creating credit challenges for the pool — 58% of the pool balance consists of loans with original terms greater than 60 months, one of the highest term lengths in recent years.

“Longer term loans in the prime segment generally experience weaker performance compared to loans with original terms of 60 months or less,” Moody’s notes. Meanwhile, declining used-car prices would add more challenges as falling used car prices can expose the transaction to a lower recovery rate and higher loss severity, and consequently a higher net loss.

Still, auto loan securitization has been robust this year as issuers continue to comply with investor demand. Issuance in auto ABS is anticipated to reach $100 billion for 2018 in both prime and subprime, which would be an increase compared with $93 billion in 2017, said Amy Sze, executive director at JP Morgan Securities, during ABS East last month.