Ford 2009 Annual Report Download - page 47

Management’s Discussion and Analysis of Financial Condition and Results of Operations
Ford Motor Company | 2009 Annual Report 45
Term Asset-Backed Securities Loan Facility ("TALF"): TALF began in March 2009 to make credit available by restoring
liquidity in the asset-backed securitization market. Under TALF, the Federal Reserve Bank of New York ("FRBNY") makes
loans to holders of TALF-eligible asset-backed securities. The loans are equal to the market value of the asset-backed
securities less a discount. Interest rates on most TALF loans are 100 basis points over the respective term benchmark
rate, and discounts vary according to the assets supporting the asset-backed securities. The TALF program revived the
asset-backed securitization market by attracting new investors who purchased asset-backed securities, receiving higher
spreads on these securities than the spreads they pay on their loans from FRBNY. As investor demand increased due to
the liquidity provided by TALF, spreads generally narrowed on Ford Credit's issuances and the percentage of non-TALF
investors increased. As the spread on certain asset-backed securities fell below the 100 basis point spread on TALF
loans, Ford Credit's TALF-eligible asset-backed securities were purchased almost exclusively by non-TALF investors.
Ford Credit issued $10.3 billion of TALF-eligible asset-backed securities in 2009, of which $2.2 billion amortized during
the year and $8.1 billion was outstanding at December 31, 2009. Ford Credit has also issued a total of $1.3 billion of
TALF-eligible asset-backed securities in 2010. The following table summarizes Ford Credit's TALF-eligible issuances
including the weighted average spread of the triple-A rated notes over the relevant benchmark rates for securitization
transactions:
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Ford Credit recently completed two public asset-backed securitization transactions that were not TALF-eligible: a retail
securitization transaction with a weighted average spread of 48 basis points on the triple-A rated notes in November 2009
and a lease securitization transaction with a weighted average spread of 54 basis points on the triple-A rated notes in
February 2010. In January 2010, Ford Credit issued about $230 million of non-TALF subordinated wholesale asset-
backed securities that were rated double-A and single-A. In February 2010, Ford Credit also issued $250 million of private
wholesale asset-backed securities with a maturity of five years compared with the three-year maturity of Ford Credit's
previous TALF transactions. Ford Credit does not plan to complete any additional TALF-eligible retail or lease transactions
before the expected expiration of TALF on March 31, 2010. Given the recent improvements in the securitization market,
and absent further significant market disruptions, Ford Credit has confidence it can obtain funding in the public
securitization markets without TALF.
European Central Bank ("ECB") Open Market Operations: FCE is eligible to access liquidity through the ECB’s open
market operations program. This program allows eligible counterparties to use eligible assets (including asset-backed
securities) as collateral for short-term liquidity. The present term limitation is three months; however, in the past the term
has been as long as one year. The funding efficiency of liquidity provided under this program is typically lower than if the
asset-backed securities were placed in the public or private markets because the ECB applies its own market valuation to
the collateral and a discount to the original face value of the asset-backed securities. The market valuation and discount
vary by the term of the asset, asset type, and jurisdiction of the asset. During the first half of 2009, FCE used the ECB's
open market operations program to provide additional liquidity at a time when access to the asset-backed securitization
market was limited and costs for such funding were significantly higher than in the past. FCE had $1.8 billion and
$1.1 billion of funding through the ECB at December 31, 2009 and 2008, respectively. During the second half of 2009,
improvements in the asset-backed securitization market allowed FCE to receive funding from public and private
securitization transactions and sell collateral previously posted with the ECB in the secondary markets. Ford Credit
expects FCE's utilization of the ECB open market operations program to decline.