In a sign of investor confidence after a rocky year, Ford Credit has sold $3 billion of auto loans to a subsidiary of New York investment house Bear Stearns Companies.
The agreement gave the Ford Motor Co. subsidiary an unusual proviso. The lender was exempted from being required to set aside about $200 million to cover loan defaults, a step normally required by asset-backed bond investors.
In addition, according to Ford Motor Co. treasurer Malcolm S. MacDonald, Ford Credit can keep a lid on its $131 billion in debt, instead of going the corporate-bond route and adding to the debt amount.
“This eliminates us from everything but servicing the loans,” MacDonald says.
Ford Credit's credit rating was trimmed in October, and its bonds began trading at near “junk” levels, even though the company itself is rated investment-grade.
It's clear what Ford Credit is doing, says Wall Street analyst Brian Bergie, of Banc One Capital Markets.
“They're trying to find every way possible to continue financing car loans, to keep the metal moving,” he says.