S&P Assigns Ratings to Ford Credit Auto Owner Trust 98-A
26 February 1998
S&P Assigns Ratings to Ford Credit Auto Owner Trust 98-A
NEW YORK, Feb. 26 -- Standard & Poor's today assigned its
ratings to Ford Credit Auto Owner Trust 1998-A's asset-backed notes and
certificates totaling $2.35 billion (see list below).
This is the first Ford Motor Credit Co. (FMC) transaction to issue a
double-'B' rated tranche and utilize a premium proceeds structure in which
the bonds are 102% of the collateral balance.
The ratings on the class A-1 through A-4 notes are based on 8.0% hard
credit enhancement at closing in the form of 7.5% subordination from the
class B notes (3.5%), class C certificates (2.0%) and class D certificates
(2.0%), and a .50% initial deposit to the reserve account, which is
nonamortizing. Additional protection is provided by excess spread that
will be used to pay down the notes (turbo) until the collateral (including
the reserve account) to bond ratio equals 101%.
The rating on the class B notes is based on credit enhancement at closing
of 4.50% in the form of subordination from the certificates and a .50%
initial deposit to the reserve account. The B notes also benefit from
overcollateralization built via the turbo feature. The rating on the
class C certificates is based on 2.0% subordination from the class D
certificates, the reserve account, and overcollateralization. The rating on
the class D certificates is based on the reserve account and
overcollateralization.
The ratings on the securities are also based on:
-- The sequential pay structure of the transaction. This benefits the
class A and B noteholders as subordination will grow as a percentage of
the outstanding receivable balance;
-- Cumulative excess spread of approximately 3.5% that is available as
additional loss protection after the transaction has built to 101%;
-- Various cash flow runs demonstrating that the rated securities can
withstand a multiple of expected losses commensurate with the assigned
rating;
-- Specified credit enhancement that increases if collateral performance
deteriorates; and
-- A sound legal structure that protects bondholders from bankruptcy of
the originator, FMC.
The specified credit enhancement increases from .50% at closing ($11.5
million) to the greater of 1% of the pool balance and the aggregate
principal balance of the receivables that are 91 days or more delinquent,
subject to a .50% floor. This feature builds additional credit enhancement
if late stage delinquencies rise above either 1.0% of the outstanding
receivables or .50% of the initial pool balance (depending on the current
pool amount) by trapping spread.
Credit support for this transaction was adjusted downward from 1997-B's
triple-'A' level of 12% as Standard & Poor's reduced its expected loss
level to approximately 2.0% from 2.6%. The reduction was due to the
improved credit quality of the 1998A pool. In late 1996 FMC tightened its
underwriting standards by increasing its minimum cut-off score and reducing
its origination volume of loans to marginal credit quality obligors. These
tighter standards are reflected in the higher credit quality of the contracts
in the 1998A pool versus FMC's 1996 and 1997 securitizations.
Standard & Poor's also reduced its expected loss level in response to FMC
providing in-depth static pool analysis study showing a close correlation
between various obligor and loan characteristics and ultimate performance.
This data was used as a tool to project expected losses with additional
refinements being made for lower used car values. FMC's 1997 portfolio data
also pointed to improved performance.
FMC's auto loan portfolio grew only 3% in 1997 to $34.7 billion versus
12% in 1996 due to stricter credit standards. Repossessions held stable at
3.0% and net losses moderated, increasing only 7% to 1.64%. In 1996 losses
had increased 56% to 1.53% from .98% in 1995. The slight deterioration in
losses in 1997 is attributable to the softness in the used car market as
the in-flux of off-lease vehicles is outstripping demand.
The securitized pool consists of $2.3 billion in fixed-rate, level pay,
fully amortizing auto loan contracts purchased from dealers throughout the
U.S. New contracts constitute 70% of the aggregate principal balance of the
receivables, which is consistent with Ford's transactions since 1995-B. The
70% new/30% used split is more favorable than FMC's portfolio mix as loans
secured by new vehicles make up only 62% of its retail serviced portfolio.
While the contract characteristics are similar to Ford's past few
transactions, the underlying credit quality appears stronger.
The payment priorities in 1998-A, while similar to those in 1997-B,
provide more liquidity to meet timely interest on the subordinated classes.
Whereas subordinated interest can be diverted in 1997-B to pay senior
principal if the senior classes do not meet certain overcollateralization
targets, subordinated interest in this transaction is redirected only if the
senior bonds are undercollateralized.
The class A-1 money market eligible notes have a final legal maturity of
12 months and benefit from 100% of principal collections and excess spread
until retired. Thereafter, principal collections will continue to be
distributed sequentially to the A-2 notes until retired, then to class
A-3, A-4, B, C, and D.
Standard & Poor's 'A-1'-plus rating on the money market notes addresses
the likelihood that the 12-month final maturity on the class A-1 notes will be
met. The stress scenario assumed zero defaults, a 0.5% absolute prepayment
speed, and that all obligors will be delinquent for one month. The
delinquency assumption takes into account FMC's policy of granting certain
high-quality borrowers payment holidays, Standard & Poor's said. -- CreditWire
Class A-1 notes A-1+
Class A-2, A-3, and A-4 notes AAA
Class B notes A
Class C certificates BBB
Class D certificates BB
SOURCE Ford Credit Auto Owner Trust