Ford sells ABS in unique fashion

Fri Feb 22, 2013 4:14pm EST

On Wednesday, Ford Motor Credit used a unique approach to distribute its US$1.34bn ABS backed by prime auto loans - it cut off the process of price whispers and invited orders based on the price guidance for different tranches.

In a typical ABS, issuers usually sound out investors with a price whisper for the different tranches in an offering, then provide price guidance based on demand before finalising levels at time of pricing.

Ford had used this distribution style with its previous prime auto-loan backed ABS in November, and by repeating this method it achieved more efficiency this time around.

"Such a distribution approach works well for an issuer like Ford because it is a programmatic issuer, and each of its deals looks very consistent from one to the next in terms of collateral and structure," said Brian Kane, head of ABS syndicate at Bank of America Merrill Lynch.

Ford's move last Wednesday was seen as an attempt to increase transaction transparency, cut down the time taken to sell these notes to investors, and take the transaction subject more quickly so investors get better allocation to their orders.

The distribution method enabled Ford to achieve tight pricing levels - and not over-the-top oversubscriptions - because investors got allocations that closely matched their orders. At the end, bankers said the tranches received smaller orders, but investors ended up with relatively larger allocations.

The US$1.342bn deal was led by Bank of America Merrill Lynch (structuring lead), BNP Paribas and Deutsche Bank as joint bookrunners. The deal was backed by a loan pool with an average FICO score of 726 made up 87.45% of new vehicles.

The pool was geographically diverse with approximately seven months of seasoning, and consisted of 40.86% of retail contracts with terms more than 60 months.

The deal contained six tranches that included a US$307.1m Class A1 (rated A1+/F1+) that carried a 0.29-year weighted average life and priced at the guidance level of 0.2%.

The US$415.3m Class A2s (rated Triple A) with an average life of 1.05 years had guidance of 6bp-8bp over EDSF and priced at 6bp. A similar result was seen in the other tranches.

The weighted average spread across the tranches - rated Triple A down to Triple B - was 17bp, which compared to 22.5bp on Ford's previous deal in November. In that deal, too, Ford came up with just guidance for different tranches and not whispers.

The Triple A tranches on the latest deal were 1.4 to 2 times covered, while the subordinated tranches were about 4 to 5 times subscribed.

"These distribution methods work when the market tone is strong like [it is] now," said a banker away from the deal.

"Ford can get away with telling the market the pricing it likes, because it is a well known issuer. Others could try it but I am not sure how many can achieve the same kind of flexibility."

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