Standard & Poor's Rates Ford Credit Auto Owner Trust
31 July 1998
Standard & Poor's Rates Ford Credit Auto Owner Trust 98-C $2 Billion Securities
NEW YORK, July 30 -- Standard & Poor's assigned its ratings
to Ford Credit Auto Owner Trust 1998-C's $2.346 billion asset-backed
notes and certificates as follows:
-- Class A-3, A-4, and A-5 at triple-'A',
-- Class A-1 and A-2 at 'A-1'-plus,
-- Class B at single-'A',
-- Class C at triple-'B', and
-- Class D at double-'B'.
This is Ford Motor Credit Co.'s third auto-loan backed term
securitization for 1998 and is very similar to its 1998-A and 1998-B
transactions. Like the prior two issues, Ford Motor Credit is issuing a
double-'B' rated tranche and utilizing a premium proceeds structure in which
the bonds are 102% of the receivables balance. However, due to a slight
reduction in the credit quality of the pool, credit enhancement at the
triple-'A' rating level was increased 50 basis points.
The ratings on the class A-1 through A-4 notes are based on 8.5% hard
credit enhancement at closing (compared to 8% for the prior two transactions)
in the form of 8% subordination from the class B notes (4%), class C
certificates (2%), and class D certificates (2%), and a 0.5% initial deposit
to the nonamortizing reserve account. Additional protection is provided by
excess spread that will be used to pay down the turbo notes until the
collateral (including the reserve account) to bond ratio equals 101%.
Subordination in the prior two transactions was 7.5%, with class B
representing 3.5% versus 4.0% in this transaction.
The rating on the class B notes is based on credit enhancement at closing
of 4.5% in the form of subordination from the certificates and a 0.5% initial
deposit to the reserve account. The class B notes also benefit from
overcollateralization built via the turbo feature. The rating on the class C
certificates is based on 2% 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 also are based on:
-- The sequential pay structure of the transaction. This benefits the
class A and B noteholders because subordination will grow as a percentage of
the outstanding receivable balance;
-- Cumulative excess spread of approximately 4.5% that is available as
additional loss protection after the transaction has built to 101%;
-- Various cash flow runs demonstrating 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, Ford Motor Credit.
The specified credit enhancement increases from 0.5% 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
0.5% floor. This feature builds additional credit enhancement if late-stage
delinquencies exceed either 1% of the outstanding receivables or 0.5% of the
initial pool balance (depending on the current pool amount) by trapping
spread.
Ford Motor Credit's portfolio performance has been improving since 1997.
While net losses had increased by approximately 50%, to 1.53% in 1997 from
0.98% in 1996, losses moderated in 1997, increasing only 7% to 1.64%. In
addition, losses declined to 1.49% for the first quarter of 1998, compared to
1.58% for the same period in 1997. Lower losses are attributable to Ford Motor
Credit's tightening its underwriting standards in mid-1996 by increasing its
minimum credit cut-off score and reducing its origination volume of loans to
higher risk obligors. The improved obligor mix is evidenced by Ford Motor
Credit's reduced repossession rate of 2.87% in the first quarter of 1998,
compared to 3.25% for the same period in 1997. Despite recent growth in the
portfolio, delinquencies have been relatively stable at 3.38% as of March 31,
1997, 3.28% as of Dec. 31, 1997, and 3.30% as of March 31, 1998. Ford Motor
Credit's portfolio expanded 8.6% during the first quarter of 1998 to an
average amount outstanding of $37.7 billion from $34.7 billion in 1997, after
increasing only 3% in 1997 from $33.6 billion in 1996.
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. The loans' weighted average APR is marginally higher at 11.1% versus
11.0% for 1998-B, indicating that the obligors in the pool are of somewhat
lower credit quality than in the last transaction. This was the result of
Ford's recent low-rate subvention program in which its best credit quality
obligors obtained lower APRs and were excluded from the pool. Ford's
transactions have a minimum APR cut-off of 7.75%. The pool is also slightly
less seasoned, with only 7.7 months seasoning versus 10 months for 1998-B. As
a result, 1998-C will experience more of the peak loss cycle and will take
losses over a longer time frame, further indicating that losses could be
higher on this pool. Consistent with 1998-A and 1998-B, used car loans
represented 30% of the pool.
Because of the slight reduction in credit quality of the pool and its
longer loss horizon, Standard & Poor's increased its expected loss level to
2.2% for this pool from 2.0% for the last transaction. The additional credit
support, credit enhancement, and ongoing excess spread provide a sufficient
multiple of expected losses at the respective rating categories.
In addition, the final maturity for each class of notes was sized
conservatively to ensure repayment by final maturity. The class A-1 and A-2
money market eligible notes have maturities of six and 11 months,
respectively, and benefit from 100% of principal collections and excess spread
until retired. Thereafter, principal collections will continue to be
distributed sequentially to the A-3 notes until retired, then to class A-4,
A-5, B, C, and D.
Standard & Poor's rating on the A-1 and A-2 money market notes addresses
the likelihood that the final maturity on the 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 Ford Motor Credit's policy of granting certain high-quality
borrowers payment holidays, Standard & Poor's said. -- CreditWire