Ford 2002 Annual Report Download - page 46

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL SERVICES SECTOR
Ford Credit
Debt and Cash–Ford Credit’s total debt was $140.3 billion at December 31, 2002, down $5.5 billion compared with a year ago.
Ford Credit's outstanding commercial paper (not including commercial paper issued to affiliates) at December 31, 2002 totaled
$8.2 billion. The average remaining maturity of Ford Credit’s commercial paper in North America and Europe was 34 days. At
December 31, 2002, Ford Credit had cash and cash equivalents of $6.8 billion. In the normal course of its funding activities,
Ford Credit may generate more proceeds than are necessary for its immediate funding needs. This excess funding is referred
to as “overborrowings.” Of the $6.8 billion of cash and cash equivalents, $5 billion represented overborrowings, while the
remaining $1.8 billion was employed in operating activities.
Funding–Ford Credit requires substantial funding in the normal course of business. Ford Credit’s funding requirements are driven
mainly by the need to (i) purchase retail installment sale contracts and vehicle leases to support the sale of Ford products, which
to a large extent are influenced by Ford-sponsored special financing and leasing programs that are available exclusively through
Ford Credit, (ii) provide vehicle inventory and capital financing for Ford dealers, and (iii) repay its debt obligations.
Funding sources for Ford Credit include the sale of commercial paper, issuance of term debt, the sale of receivables in
securitization transactions and, in the case of FCE, the issuance of certificates of deposit. These funds are obtained from
investors in various markets.
Ford Credit’s commercial paper issuances are used to meet short-term funding needs. Ford Credit has commercial paper
programs in the United States, Europe, Canada and other international markets. It reduced the amount of its outstanding global
unsecured commercial paper from $15.7 billion at the end of 2001 to $8.2 billion ($3.4 billion net of overborrowings and including
commercial paper sold to other Ford affiliates) at December 31, 2002 by replacing such funding with term-debt and proceeds
from the sale of receivables. During 2003, Ford Credit plans to have commercial paper outstanding at levels of around $5 billion
to $7 billion, net of overborrowings. Ford Credit also obtains short-term funding through the issuance of variable denomination,
floating rate demand notes through its Ford Money Market Account program. At December 31, 2002, $5.1 billion of such notes
were outstanding. Bank borrowings are an additional source of short-term funding in certain international markets.
Long-term funding requirements for Ford Credit are met through the issuance of a variety of debt securities in both the United
States and international capital markets. During 2002, Ford Credit issued approximately $13.5 billion of term debt with maturities
ranging between one and thirty years. During 2003, Ford Credit plans to raise $7 billion to $10 billion through term debt
issuances and $12 billion to $15 billion through public term securitization transactions, which are discussed below. Other
sources of funds include bank borrowings, mainly in countries where capital markets are less developed.
During 2002, Ford Credit continued to meet a significant portion of its funding requirements by selling finance receivables in
securitizations because of the stability of investor appetite for asset-backed securities, their lower relative cost (as described
below), and the diversification of funding sources that they provide. Ford Credit also developed or expanded additional funding
sources, including retail unsecured bond issuances, new asset-backed commercial paper programs and international securitiza-
tion programs. In addition, Ford Credit launched a whole-loan sale program that will reduce future funding requirements. Under
the whole-loan sale program, Ford Credit sells retail loans without holding any retained interests in such loans and receives fee
income as it continues to service those loans. Ford Credit sold $5 billion of retail loans through this program in the fourth quarter
of 2002, and expects to complete further sales in 2003. Because Ford Credit does not have retained interests in receivables
sold through its whole-loan program, it does not have contractual or economic risk of loss associated with those retained
interests with respect to whole-loan sales of receivables. Accordingly, Ford Credit does not treat such receivables as
“managed receivables” and whole-loan sales of receivables are excluded from the discussion of securitization transactions
below.
As a result of Ford Credit's expanded securitization sources and other actions, the decline in debt ratings Ford Credit experi-
enced in 2002 and 2001 did not have a material impact on its ability to fund operations and maintain liquidity. Any further lower-
ing of Ford Credit's debt ratings would increase its borrowing costs and potentially constrain certain funding availability from the
capital markets. This in turn likely would cause Ford Credit to rely more heavily on funding through securitization transactions, or
to reduce its assets and liabilities. Ford Credit’s ability to sell its receivables may be affected by the following factors: the amount
and credit quality of receivables available to sell, the performance of receivables sold in previous transactions, general demand
for the type of receivables Ford Credit offers, market capacity for Ford Credit-sponsored investments, market disruption and
Ford Credit’s debt ratings. If as a result of any of these or other factors, the cost of securitized funding significantly increased
or securitized funding were no longer available to Ford Credit, its liquidity would be adversely impacted.