Credit rating for a corporate bond issue of FORD

1. Ford Credit Auto Owner Trust 2010-B
A Credit Rating course Presentation
Asian Institute of Management, Manila

2. Agenda
1. Understand the structure of finance and collateral
offered by the asset backed securities
2. Identify potential sources of risk
3. Specifically, focus on the nature of the collateral
4. Identify risks that may impede timely payment of
principal and interest
5. Discuss and identify risks associated with the flow of
cash

3. Rating Criteria
Credit ratings for ABSs are established by reviewing :
• The structure of the deal and the parties involved
• The nature and performance history of the collateral
• The special purpose entity used to securitize the
collateral and issue the resulting note
• The credit enhancements used to protect the senior
tranches against default.

4. The Parties Involved:
• Sponsor & Servicer: Ford Motor Credit Company LLC
• Depositor : Ford Credit Auto Receivables Two LLC
Ford Credit’s senior unsecured debt ratings:
Debt type DBRS Fitch Moody’s S&P
Short-term R4 B NP NP
Debt
Long Term B(High) BB- Ba3 B-
Debt
Outlook Positive Positive Stable Positive

5. Review of Main Parties
• Long history of securitizing the assets since 1988
• These securitization programs are diversified among
asset classes and markets
• Ford Credit performs its due diligence prudently using
FICO scores and also keep updating their models to
incorporate new factors which improve statistical
probability
• It regularly reviews and analyzes its portfolio of
receivables.

6. The Instrument
• It is an Auto Loan ABS
• The Servicers are treated as Third party even if they are
the originators of the loan, like in this case
• Auto loans use the absolute prepayment speed
(APS) metric
• Absolute Prepayment Speed (APS) = Number Of
Loans Prepaid In A Given Period / Number Of Original
Loans In Pool
• Auto ABS are subject to clean-up calls: Option to
purchase the receivables from the trust on any payment
date when the pool balance is 5% or less of the initial
pool balance

7. Evaluating the Collateral
• A pool of retail installment sale contracts secured by new
and used cars, trucks and utility vehicle-collection on the
receivables
• Securities interest in the financed vehicles
• Proceeds on claims on the related insurance policies
• 50% of the collateral pool consists of Prime Borrowers
• Only 12% are Sub-prime borrowers

8. Structure Analysis
Coupons:
• Has a mix of both fixed and floating rates
• The floating rate will bear interest determined
by LIBOR+ spread(specified in the prospectus)
• Issues with Swaps & Caps to mitigate interest
rate risks

9. Internal Credit Enhancements
• Reserve Account: Equal to 1% of initial pool balance is
available
• Subordination: The debt is issued in tranches with cash
waterfalls in the order of A, B ,C &D
• Overcollateralization: The pool balance exceeding the
principal amount of notes equal to 9.79% of the initial
pool balance
• Excess Spread: Equal to the amount of interest
collections and principal collections relating to the yield
supplement discount after paying the expenses
• ‘Turbo’ payments for a class of notes.

10. External Credit Enhancement
• Creation of the special purpose vehicle to
achieve bankruptcy remoteness from the
originator of the underlying loans

11. Payment Enhancements
• Interest rate swaps with caps and floors to hedge counter
party risks
• Third party payments, guarantees, Letters of Credit etc

12. Potential Risks
• Increased competition from other auto companies
• The lack of sale of new cars in the wake of economic
downturn
• Rising Oil prices resulting in the sale of fuel-efficient cars
from other countries
• Resale value of cars going down
• Slow down in the auto industry

13. • The number of Light truck receivables is about 37.82% which is quite high. The
potential risk here could be the loss of the this market due to recession as lesser
trucks will be used for goods transportation
• Although the new vehicles are more in the portfolio which leads to lesser revenue as
the APR of older vehicles is more than new vehicles

14. • The billing addresses of the obligors of the receivables were concentrated in
Texas (13.34%), California (8.34%), Michigan (6.98%) and Florida (6.18%)
• Economic conditions or other factors affecting these states in particular
could adversely impact the delinquency, credit loss or repossession
experience of the trust and could result in delays in payments or losses on
your notes.

15. • Number of receivables with FICO score of more than 650 is about 70% of
the total receivables which is an good indicator of low realized
delinquencies of the borrowers

16. APR is the payment paid by initial auto loan borrower. The income from the APR is not
that high as more number of receivables(30.11%) give less amount of interest significantly
reducing the weighted APR

17. • The number of contracts outstanding in value and quantity
has been decreasing which is a cause of worry
• The delinquencies of the contracts has been steadily reducing
over the years which speaks about the high credit quality of
the borrowers

18. • The repossesions which are causes of losses for the lender
have been reducing which is a good sign
• The net losses have been reducing as well
• Also, the net losses as a percentage of average portfolio
outstanding have been reducing which is again a good sign

19. Expected ratings
• The depositor expects to obtain the following ratings:
Notes Rating(Moody’s)
Class A-1 Notes Aaa
Class A-2 Notes Aaa
Class A-3 Notes Aaa
Class A-4 Notes Aaa
Class B Notes Aa1
Class C- Notes Aa2
Class D-Notes A1

20. THANKYOU