Ford 2002 Annual Report Download - page 47

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The cost of both unsecured term debt and funding through securitization transactions is based on the margin (or spread) over a
benchmark interest rate, such as the London Interbank Offered Rate or interest rates paid on U.S. Treasury securities of similar
maturities. Spreads are typically measured in basis points, where one basis point equals one one-hundredth of one percent
(0.01%). Since 1998, the three-year fixed rate spread on Ford Credit’s securitized funding has been at a level between 38 and
110 basis points above comparable U.S. Treasury securities, while Ford Credit’s unsecured term-debt spreads have fluctuated
between 46 basis points and 662 basis points above comparable U.S. Treasury securities. In 2002, Ford Credit’s unsecured
term-debt spreads fluctuated between 195 and 662 basis points above comparable U.S. Treasury securities, with an average
spread of 357 basis points and a year-end spread of 375 basis points above comparable U.S. Treasury securities.
Ford Credit’s worldwide proceeds from the sale of retail and wholesale finance receivables through securtizations and
whole-loan sales are shown below for the years ended December 31 (in billions):
2002 2001 2000
Receivable Type
Retail $ 36.5 $ 32.0 $ 19.2
Wholesale 4.8 8.8 0.3
Net Proceeds $ 41.3 $ 40.8 $ 19.5
For additional funding and to maintain liquidity, Ford Credit has contractually committed credit facilities with financial institutions
that totaled $13.9 billion at December 31, 2002, including $5.3 billion available for FCE. The majority of these facilities are
available through June 30, 2007 and $900 million was in use at December 31, 2002 (primarily by affiliates outside of the United
States and Europe). In addition, banks provide $13.6 billion of contractually committed liquidity facilities to support Ford Credit’s
asset-backed commercial paper programs. All of Ford Credit’s global credit facilities are free of material adverse change clauses
and restrictive financial covenants (for example, debt-to-equity limitations, minimum net worth requirements and credit rating
triggers that would limit its ability to borrow).
Ford Credit also has entered into agreements with several bank-sponsored, commercial paper issuers (conduits) under which
such issuers are contractually committed to purchase from Ford Credit or hold, at Ford Credit’s option, up to an aggregate of
$12.6 billion of receivables. These agreements have varying maturity dates between March 31, 2003 and October 31, 2003. As
of December 31, 2002, approximately $5.2 billion of these commitments were used. These programs do not contain restrictive
financial covenants (for example, debt-to-equity limitations or minimum net worth requirements) or material adverse change
clauses that could preclude selling receivables, but do contain provisions that would terminate those commitments if the per-
formance of the sold receivables deteriorates beyond specified levels. None of these arrangements may be terminated based
on a change in our credit rating. For a discussion of the impact of Financial Accounting Standards Board (“FASB”) Interpretation
No. 46, Consolidation of Variable Interest Entities (“FIN 46”) on the cost and availability of these conduit facilities, see
“Off-Balance Sheet Arrangements —Variable Interest Entities”, below.
At December 31, 2002, Ford Credit’s debt-to-equity ratio was 12.8 to 1 on a managed basis (excluding the effect of Axus,
our all-makes vehicle fleet leasing operation, that was held for sale), down from 14.8 to 1 at December 31, 2001. In calculating
its managed leverage, Ford Credit adds outstanding securitized receivables (but not receivables sold in whole-loan sale transac-
tions) to debt, and nets against this amount its retained interests in securitized receivables and its cash, including overborrow-
ings. Ford Credit also adjusts both debt and equity for effects of SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, in the calculation of managed leverage because SFAS No. 133 adjustments vary over the term of the
underlying debt and securitized funding obligations based on changes in market rates and we generally repay our debt
as it matures.
Hertz
Hertz requires funding for the acquisition of revenue earning equipment, which consists of vehicles and industrial and construc-
tion equipment. Hertz purchases this equipment in accordance with the terms of agreements negotiated with automobile and
equipment manufacturers. The financing requirements of Hertz are seasonal and are mainly explained by the seasonality of the
travel industry. Hertz’ fleet size, and its related financing requirements, generally peak in the months of June and July, and
decline during the months of December and January. Hertz accesses the global capital markets to meet its funding needs.
Hertz maintains unsecured domestic and foreign commercial paper programs and a secured domestic commercial paper
program to cover short-term funding needs, and also draws from bank lines, as a normal business practice, to fund
international needs. Hertz also is active in the domestic medium-term and long-term debt markets.
During 2002, Hertz launched an asset-backed securitization program for its domestic car rental fleet to reduce its borrowing
costs and enhance its financing resources. As of December 31, 2002, $514 million was outstanding under this program.