Here in New Jersey, spring is in the air. Trees that were barren on Sunday by Thursday had pink buds and flowers blooming on them. Little League baseball and youth soccer are in full swing. Wearing shorts outside no longer has people wondering whether it’s your laundry day or if you forgot where you lived before you left the house.
Spring is rebirth. Spring is a second chance. Spring is innovation.
It is through those pink-colored glasses that I see signs of spring in the auto finance market. Ford Motor Credit Co. has announced plans for a securitization backed by auto loans. Definitely not newsworthy in and of itself. But the structure Ford is using to issue this securitization has piqued the market’s interest. The $1.5 billion deal is tied to Ford Credit’s investment rating. If two of the three rating agencies upgrade Ford’s unsecured debt to investment grade, then the bonds will be converted to Ford unsecured debt, holding the same yield and maturity as the original bonds.
Ford Credit’s credit rating currently sits two or three notches below investment grade among the three major rating agencies, Fitch, Moody’s, and Standard & Poor’s.
Given Ford’s stature and size, it’s unlikely that many other issuers will be able to follow suit by securitizing loans under such a structure. But perhaps this deal is the inflection point for a market that is languishing and has been for quite some time. Plants need water to grow. Lenders need liquidity. Access to the capital markets is key to fueling this industry. A stale securitization market is a bad sign for lenders.
The auto finance industry desperately needs a spring. Those companies that have survived the past 30 months need to reinvent themselves and the way in which they do business. Now is the time to plant seeds. Now is the time to start building and growing. Spring is happening.
