Ford 2009 Annual Report Download - page 110

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Notes to the Financial Statements
108 Ford Motor Company | 2009 Annual Report
NOTE 13. VARIABLE INTEREST ENTITIES (Continued)
Financial Services Sector
VIEs of which Ford Credit is the primary beneficiary:
Ford Credit uses special-purpose entities to issue asset-backed securities in transactions to public and private investors,
bank conduits, and government-sponsored entities or others who obtain funding from government programs. The asset-
backed securities are secured by the expected cash flows from finance receivables and interests in net investments in
operating leases. The expected cash flows from these assets have been legally sold but Ford Credit retains interests in its
securitization transactions, including senior and subordinated securities issued by VIEs, rights to cash held for the benefit of
the securitization investors such as cash reserves, and residual interests. Therefore, the assets continue to be consolidated
by Ford Credit.
The VIE transactions create and pass along risks to the variable interest holders, depending on the assets securing the
debt and the specific terms of the transactions.
Ford Credit aggregates and analyzes its transactions based on the risk profile of the product and the type of funding
structure, including:
• Retail transactions – consumer credit risk and prepayment risk.
• Wholesale transactions – dealer credit risk.
• Net investments in operating lease transactions – vehicle residual value risk, consumer credit risk, and
prepayment risk.
As residual interest holder, Ford Credit is exposed to underlying residual and credit risk of the collateral, and may be
exposed to interest rate risk. However, this risk is not incremental to the exposure Ford Credit has on the underlying
assets. Ford Credit's residual interest in these transactions was $27.2 billion and $18.2 billion at December 31, 2009
and 2008, respectively. The amount of risk absorbed by Ford Credit's residual interests is generally represented by and
limited to the amount of overcollaterization of its assets securing the debt and any cash reserves.