Ford Motor Co. to sell contracts for $3 billion
With Ford Motor Co.'s credit rating under siege, the automaker's financial subsidiary is utilizing a new financial device to raise money.
Ford Motor Credit Co. said Tuesday it plans to sell $3 billion of retail automobile installment contracts to Bear Stearns Asset Backed Funding Inc., a subsidiary of New York-based Bear, Stearns & Co. Inc. The transaction is the first for Ford Credit's new "Whole Loan" sale program.
Malcolm Macdonald, Ford vice president finance and treasurer, said Tuesday the innovative contracts will open the door to a new source of money to Ford Motor Credit.
"This transaction is similar to the transactions that have been standard practice in the home mortgage market for years. It also frees equity capital previously dedicated to our auto loan portfolio," Macdonald said.
"We are pleased to have developed this further source of liquidity, which complements the sources of capital already available to Ford Credit."
Ford representatives insisted the company was not forced into the transaction because of the reduction in its credit rating. A downgraded credit rating makes it more expensive for the company to borrow money in the bond market.
"It's not a friendly environment for unsecured, long-term funding right now," said Ford Credit spokeswoman Melinda Wilson. "This is an approach and a market that is in its infancy."
Ford already has sold more than $20 billion in asset-backed securities to raise money for new cars loans, Wilson said.
In contrast to the sale of retail installment sale contracts in its public securitizations, Ford Credit does not retain any interest in the contracts sold in the whole loan sale program.
Ford Credit, however, will continue to service the contracts for a fee, retaining the servicing income and the customer relationship, Macdonald said.
The end buyers of the loans will probably include investment banks, commercial banks, insurance companies and other financial institutions. These purchasers may choose to retain the contracts on their own balance sheet, sell them to other whole loan purchasers or repackage them for sale in the capital markets.
"This program is consistent with our strategy of meeting the needs of Ford and our dealers, while maximizing the efficient use of our capital," said Greg Smith, Ford Credit chairman. "At the same time, the program allows us to maintain our important touch points with our customers through continued servicing of the loans."
©The Oakland Press 2002