Ford's FCE Bank did £900 million of public debt in 2011

By Paul Deckelman

New York, March 29 - FCE Bank plc continued to have sufficient access to the debt markets in 2011, when it completed £900 million of public asset-backed and term debt. FCE is the main operational arm of Ford Credit Europe, which handles dealer and retail financing for European sales of ultimate corporate parent Ford Motor Co.'s new vehicles.

The debt entered into in 2011 included a new three-year £440 million syndicated multi-currency unsecured revolving credit facility.

Sam Smith, FCE's treasurer, said on the company's conference call Thursday following the release of its 2011financial results that the revolver "was established with an expectation of periodic utilization" and was about 30% utilized at year's end.

The liquidity has continued to flow so far in 2012, helped by FCE's almost-investment-grade ratings. The company has set a goal of between £1 billion and £2.1 billion of public term funding for this year, including £250 million it has already raised in the markets since the beginning of the year.

"While it remains part of FCE's funding strategy to raise public term unsecured funding in the European markets, we do benefit from additional flexibility created by our position within the global company," Smith said. "If capital markets are not favorable in Europe, FCE may have the opportunity to access funding raised in the U.S. through its parent - although no such funding is included as part of our current planning assumptions."

During 2011, FCE repurchased €191 million principal amount, equivalent to £169 million, of the unsecured debt scheduled to mature in January of this year.

"Depending on market conditions and our liquidity position, we may consider other repurchases as an economically favorable use of our available cash," Smith said.

Securitization is key

On the secured-funding front, he said that FCE last year renewed or added £3.1 billion of private securitization capacity and this year has so far renewed or added another £1 billion of such capacity, including programs funding its retail receivables in the Italian and Spanish markets. The latter is no small matter given the perceived economic weakness in those two nations.

Securitization, he said, "continues to play a key role in FCE's funding strategy given its cost advantage over unsecured long-term funding."

As of Dec. 31, secured debt was 56% of the funding for net loans and advances FCE provided to its borrowers, an increase compared with year-end 2010, when the mix of secured debt was temporarily lower. By the end of this year, "we expect secured debt to be in a range of 55% to 61% of net loans and advances. Thereafter, we expect this ratio will decline," Smith said.

FCE's various sources of liquidity include unsecured credit facilities, committed securitization capacity and cash.

As of Dec. 31, FCE had £7.7 billion of total capacity plus cash and equivalents. Smith said that FCE had total liquidity of £5.9 billion after adjusting for securitization capacity that exceeds eligible assets and cash not available for use in day-to-day operations because it is associated with securitization transactions or is part of central bank deposits the company is required to maintain.

After £3.1 billion of scheduled utilization for various corporate purposes, that left a year-end level of liquidity available for use of £2.8 billion. As in 2010, "this level of liquidity was high in anticipation of a scheduled unsecured debt maturity in the first quarter as well as the expected seasonal increase in assets in the first quarter," Smith said.

He further noted that £1.1 billion of securitization capacity in excess of eligible receivables "provides flexibility in funding future originations or shifting capacity to different markets and asset classes."

Ratings approach high grade

Smith said that FCE's credit ratings "are closely associated with the credit ratings of Ford and Ford Credit, which improved during 2011 but remain below investment grade. In the case of S&P, FCE is assigned a one-notch positive differential compared with Ford Credit. This means that FCE is now rated investment grade by S&P."

S&P currently rates FCE at BBB-, with positive implications, up from BB- in December 2010.

However, the other two major ratings agencies still have FCE at the high end of the junk bond spectrum. Moody's Investors Service has the company at Ba1, with positive implications, although that's up from Ba2/stable a year ago. Fitch Ratings gives FCE a BB+, with positive implications, versus BB-/stable a year ago.

During the question-and-answer portion of the call following the formal company presentation, Smith was asked whether the improved ratings, particularly from S&P, have had an impact on its funding. He said "we have seen that translate to lower credit spreads," but at the same time, "the economic backdrop, especially in Europe, has probably been a negative for us. So our credit spread on our most recent issue is a little higher than what we saw back in the middle of the year in 2011."

He said FCE's overall funding strategy after the end of 2012 "is aimed at changing the mix between secured and unsecured funding, as we expect the ratio represented by secured funding to decline over time.

"That strategy is not going to be impacted from a big-picture standpoint by the monthly variation in our credit spreads; instead, overall, it represents the strategic direction of where we're headed with an investment-grade balance sheet."

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.