DEARBORN, Michigan, June 7, 2021 – Ford Motor Credit Company has drawn its first asset-backed securitization (ABS) funding through a private facility that is linked to the secured overnight financing rate (SOFR) as a benchmark. This transaction also includes a SOFR-based interest rate hedge.
The facility, which is backed by Ford Credit retail assets, was established in May with J.P. Morgan and replaces a previous London Interbank Offered Rate (Libor)-based facility. Ford Credit established a second SOFR-linked facility with J.P. Morgan in early June backed by Ford Credit lease assets.
“These transactions demonstrate that SOFR can be applied in the securitization and derivatives markets – and that it can be applied today, in advance of the expected end of Libor,” said Ryan Hershberger, Ford Motor Company director of global funding and capital markets.
Libor is used globally to price many financial products and contracts, and it is being phased out. The Alternative Reference Rates Committee (ARRC) established by the U.S. Federal Reserve System and Federal Reserve Bank of New York has recommended SOFR as a replacement for Libor.
“We are very pleased to be able to help Ford Credit with its transition from USD Libor, well ahead of the scheduled cessation of Libor benchmark settings,” said George Wilkins, head of auto and equipment ABS at J.P. Morgan. “With Ford Credit, we were able to develop a holistic solution for our committed securitization facilities including funding and hedging to provide for the use of a SOFR benchmark.”
In 2019, Ford Credit developed SOFR fallback language used in its public ABS transactions, and it has issued public ABS debt in the UK based on the sterling overnight index average (SONIA). Hershberger said development of the new facilities was a milestone and that he appreciated the efforts of ARRC, the Structured Finance Association and other industry leaders in developing SOFR.
“SOFR is suitable for the securitization and derivatives markets,” Hershberger said. “We expect these new SOFR-linked facilities will be the template for Ford Credit’s private ABS programs going forward.”