Ford, Nissan go to the market — and it says yes
A new U.S. stimulus program is loosening credit for car buyers.
Last week the finance arms of Ford Motor Co. and Nissan North America sold $4.25 billion in bonds to fund consumer auto loans. Some of the bond buyers used newly available government loan guarantees.
The bonds were an example of what’s called securitization, one method of funding car loans before the credit crunch began last year. Lenders bundle many loans into bonds. Bond buyers are repaid as car owners pay off loans.
But last week’s bond sale was far from standard in one sense: Bond buyers could ask a new Obama administration stimulus program called the Term Asset-Backed Securities Loan Facility to guarantee 80 percent of the value of their purchase.
Last week’s TALF bond sale does not mean securitization is back in full force. But if all goes well, it is a nice step to rebuild confidence in the credit markets and to get auto lending rolling.
Actually, The TALF program didn’t guarantee all the auto-related bonds sold last week. Ford and Nissan sold $4.25 billion in bonds for auto loans. Investors asked for TALF guarantees on bids for only $1.9 billion in auto-loan backed bonds.
So ordinary investors without TALF guarantees bought more than half the auto-related bonds. That in itself is a good sign that the window is reopening.
Since the middle of 2008, investors have largely shunned bonds that were backed by auto loans.
Here is another good sign: Industry sources said Nissan had more buyers than needed for its $1.3 billion offer and got interest rates of one-half to three-quarters of 1 percentage point less than its prospectus projected.
Ford sold its entire $2.95 billion offering and expects all other 2009 bond offerings “to be TALF-eligible,” said spokeswoman Margaret Mellott.
“We appreciate government efforts — and there have been a lot to date — to try to improve the credit markets,” she said.
Asset-backed securities help lenders make car loans with less capital than if they kept the loans on their books. Instead of tying up capital while consumers repay multiyear loans, lenders sell cash flow from the loans to investors via bonds. Sale proceeds provide capital to make more loans.
But the asset-backed securities market slowed dramatically after last summer’s credit crisis. In part, investors feared too many hard-pressed consumers would default to pay off the asset-backed securities.
The Ford and Nissan bonds are backed by prime auto loans, but the TALF program is also open to bonds backed by nonprime vehicle loans and dealer floorplanning. Prime loans are provided to customers with good credit ratings.
