Ford 2009 Annual Report Download - page 46

Management’s Discussion and Analysis of Financial Condition and Results of Operations
44 Ford Motor Company | 2009 Annual Report
While challenges remain, Ford Credit saw improvement in the capital markets in the last three quarters of 2009
evidenced by improvement in market access and credit spreads, including: four unsecured debt issuances in the United
States and one in Europe totaling about $5 billion with significantly improved U.S. credit spreads from the first to the most
recent; increasingly tighter spreads on Ford Credit's triple-A rated classes of Ford Credit's U.S. retail securitization
transactions; a non-TALF public retail securitization transaction in November 2009; two European public retail
securitization transactions in the fourth quarter of 2009; Ford Credit's first public wholesale securitization transaction since
2006 in October 2009; a two-year committed lease facility in December 2009; and the sale of over $150 million of
subordinated notes from Ford Credit's September 2009 public retail securitization transaction.
Ford Credit's funding plan is subject to risks and uncertainties, many of which are beyond its control, including
disruption in the capital markets for the types of asset-backed securities used in Ford Credit's asset-backed funding, as
well as disruption beyond the expiration of the government-sponsored securitization funding programs. Potential impact of
industry events on Ford Credit's ability to access debt and derivatives markets or renew its committed liquidity programs in
sufficient amounts and at competitive rates represents another risk to Ford Credit's funding plan. As a result, Ford Credit
may need to further reduce the amount of finance receivables and operating leases it purchases or originates, thereby
reducing its ongoing profits and adversely affecting its ability to support the sale of Ford vehicles.
Funding. Ford Credit requires substantial funding in the normal course of business. Its funding requirements are
driven mainly by the need to: (i) purchase retail installment sale contracts and retail lease contracts to support the sale of
Ford products, which are influenced by Ford-sponsored special-rate financing programs that are available exclusively
through Ford Credit, (ii) provide wholesale financing and capital financing for Ford dealers, and (iii) repay its debt
obligations.
Ford Credit's funding sources include primarily securitization transactions (including other structured financings) and
unsecured debt. Ford Credit issues both short- and long-term debt that is held by both institutional and retail investors,
with long-term debt having an original maturity of more than 12 months. Ford Credit sponsors a number of securitization
programs that can be structured to provide both short- and long-term funding through institutional investors in the United
States and international capital markets.
Ford Credit obtains short-term unsecured funding from the sale of floating rate demand notes under its Ford Interest
Advantage program and by issuing unsecured commercial paper in the United States, Europe, and other international
markets. At December 31, 2009, the principal amount outstanding of Ford Interest Advantage notes, which may be
redeemed at any time at the option of the holders thereof without restriction, was about $4 billion. At present, all of Ford
Credit's short-term credit ratings by nationally recognized statistical rating organizations ("NRSROs") are below the Tier-2
category, and as a result it has limited access to the unsecured commercial paper market and Ford Credit's unsecured
commercial paper cannot be held by money market funds. At December 31, 2009, the principal amount outstanding of
Ford Credit's unsecured commercial paper was less than $1 million. Ford Credit does not hold reserves specifically to fund
the payment of any of its unsecured short-term funding obligations. Instead, Ford Credit maintains multiple sources of
liquidity, including cash, cash equivalents, and marketable securities (excluding marketable securities related to insurance
activities), unused committed liquidity programs, excess securitizable assets, and committed and uncommitted credit
facilities, which should be sufficient for Ford Credit's unsecured short-term funding obligations.
Government-Sponsored Securitization Funding Programs. Government-sponsored securitization funding programs
have helped stabilize the asset-backed securitization market. Since the third quarter of 2009, Ford Credit significantly
reduced the use of these programs as its access to the public and private securitization and unsecured markets continued
to improve.
Commercial Paper Funding Facility ("CPFF"): The CPFF became operational in October 2008 and purchased
unsecured and asset-backed commercial paper from U.S. issuers. In 2008, Ford Credit registered to sell up to $16 billion
from its asset-backed commercial paper program ("FCAR") to the CPFF. At December 31, 2008, FCAR had $7 billion of
commercial paper outstanding under the CPFF, which represented about 60% of FCAR's outstanding balance. FCAR was
able to issue a limited amount of commercial paper to investors during the first half of 2009 and at lower interest rates than
under CPFF, but with a relatively short average maturity compared with CPFF and often overnight. FCAR issued a total of
$9 billion of commercial paper to the CPFF in 2009, all of which had matured by September 30, 2009. Commercial paper
was sold to the CPFF at a price based on the designated benchmark rate, plus a spread of 300 basis points. This
represented a significantly higher rate than those that prevailed in the asset-backed commercial paper market before
August 2007, when the disruptions in the debt and asset-backed securitization markets began. As a result of
improvements in the asset-backed commercial paper market, as well as a reduction in the overall size of FCAR, FCAR is
able to issue commercial paper outside the CPFF at prices and average maturities that are close to those that prevailed
before August 2007. The CPFF ceased purchasing commercial paper on February 1, 2010.