10/30/2009

Ford to Speed Up Issuance Assembly Line

Ford is planning a substantial boost in its securitization volume.

In recent talks with underwriters, representatives from the automaker have indicated that they expect its 2010 output of securities backed by prime-quality auto loans, leases and dealer-floorplan credits written in the U.S. to total some $14 billion.

That would mark Ford's busiest year as an asset-backed bond issuer in the States since 2005, when it weighed in with $14.5 billion of deals, according to Asset-Backed Alert's ABS Database. The company then followed up with $10.7 billion of transactions in 2006, $5 billion in 2007 and $9.9 billion in 2008.

So far this year, Ford has sold $9.2 billion of asset-backed securities. But with the lone exception of a $500 million floorplan-loan transaction in June, all of its 2009 issues have been aided by buyer financing made available through the Federal Reserve's Term Asset-Backed Securities Loan Facility.

Now, with TALF set to stop offering new investor support in March, Ford's latest volume projections suggest a bullish outlook on its business in general.

The approach is reinforced by increasing market share, as Ford gains on sales leaders General Motors and Toyota. Increased third-quarter sales also came as a positive sign, even if those figures were buoyed in part by the federal government's now-expired "cash-for-clunkers" program. Stock analysts are even predicting that the Dearborn, Mich., company will break even for the third quarter, which would be a feat considering massive losses it has suffered in recent years.

In a bullish turn from a securitization standpoint, Ford vehicles are also holding more of their resale values. That helps stem losses when repossessed vehicles are sold, thus helping to bring down charges associated with the automaker's outstanding auto-loan bonds. The trend makes new deals more appealing as well.

Ford doesn't have a lot of other funding options. The company's junk ratings - Caa2/CCC+/CC from Moody's, S&P and Fitch - make it costly to issue unsecured debt. A push earlier this year to become an industrial-loan corporation, and thus qualify to issue FDIC-insured certificates of deposit, also appears to have faded.

Market players expect to gain more insight about Ford's securitization plans on Nov. 2, when the company releases its third-quarter earnings. They'll especially be looking for details on how the company intends to keep its securitization volume in high gear once TALF expires.

Recent pricing trends point to acceptable funding costs, after wide spreads contributed to Ford's pullback over the past few years. For example, Ford sold a batch of TALF-eligible bonds with average lives of one year and triple-A ratings on March 19 at 200 bp over Libor. It then placed a similar class on Sept. 2 at 60 bp over Libor. The thought is that some of those improvements would stick for non-TALF issues.

Ford has been the most active issuer of auto-loan bonds this year, far outpacing the $6.1 billion of supply offered by Bank of America. In addition to its U.S. loans, Ford has in the past securitized credits in Canada, Germany, the Netherlands and Japan.

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