Ford 2009 Annual Report Download - page 53

Management’s Discussion and Analysis of Financial Condition and Results of Operations
Ford Motor Company | 2009 Annual Report 51
the timely payment of interest and the payment of principal at maturity. Payment enhancements include yield supplement
arrangements, interest rate swaps, and other hedging arrangements, liquidity facilities, and certain cash deposits.
Ford Credit retains interests in its securitization transactions, including senior and subordinated securities issued by the
SPE, rights to cash held for the benefit of the securitization investors (for example, a reserve fund), and residual interests.
Residual interests represent the right to receive collections on the securitized assets in excess of amounts needed to pay
securitization investors and to pay other transaction participants and expenses. Ford Credit retains credit risk in
securitization transactions because its retained interests include the most subordinated interests in the securitized assets
and are structured to absorb expected credit losses on the securitized assets before any losses would be experienced by
investors. Based on past experience, Ford Credit expects that any losses in the pool of securitized assets would likely be
limited to its retained interests.
Ford Credit is engaged as servicer to collect and service the securitized assets. Its servicing duties include collecting
payments on the securitized assets and preparing monthly investor reports on the performance of the securitized assets
and on amounts of interest and/or principal payments to be made to investors. While servicing securitized assets, Ford
Credit applies the same servicing policies and procedures that Ford Credit applies to its owned assets and maintains its
normal relationship with its financing customers.
Ford Credit generally has no obligation to repurchase or replace any securitized asset that subsequently becomes
delinquent in payment or otherwise is in default. Securitization investors have no recourse to Ford Credit or its other
assets for credit losses on the securitized assets and have no right to require Ford Credit to repurchase their investments.
Ford Credit does not guarantee any asset-backed securities and has no obligation to provide liquidity or make monetary
contributions or contributions of additional assets to its SPEs either due to the performance of the securitized assets or the
credit rating of its short-term or long-term debt. However, as the seller and servicer of the securitized assets, Ford Credit is
obligated to provide certain kinds of support to its securitization transactions, which are customary in the securitization
industry. These obligations include indemnifications, repurchase obligations on assets that do not meet eligibility criteria or
that have been materially modified, the mandatory sale of additional assets in revolving transactions, and, in some cases,
servicer advances of certain amounts.
Risks to Continued Funding under Securitization Programs. The following securitization programs contain structural
features that could prevent Ford Credit from using these sources of funding in certain circumstances:
• Retail Securitization. If the credit enhancement on any asset-backed security held by FCAR is reduced to zero,
FCAR may not purchase any additional asset-backed securities or issue additional commercial paper and would
wind down its operations. In addition, if credit losses or delinquencies in Ford Credit's portfolio of retail assets
exceed specified levels, FCAR is not permitted to purchase additional asset-backed securities for so long as such
levels are exceeded.
• Retail Conduits. If credit losses or delinquencies on the pool of assets held by a conduit exceed specified levels, or if
the level of over-collateralization or credit enhancements for such pool decreases below a specified level, Ford
Credit will not have the right to sell additional pools of assets to that conduit.
• Wholesale Securitization. If the payment rates on wholesale receivables in the securitization trust are lower than
specified levels or if there are significant dealer defaults, Ford Credit will be unable to obtain additional funding and
any existing funding would begin to amortize.
• Retail Warehouse. If credit losses or delinquencies in Ford Credit's portfolio of retail assets exceed specified levels,
Ford Credit will be unable to obtain additional funding from the securitization of retail installment sale contracts
through its retail warehouse facility (i.e., a short-term credit facility under which draws are backed by the retail
contracts).
• Lease Warehouse. If credit losses or delinquencies in Ford Credit's portfolio of retail lease contracts exceed
specified levels, Ford Credit will be unable to obtain additional funding from the securitization of retail lease contracts
through its lease warehouse facility (i.e., a credit facility under which draws are backed by the retail lease contracts).
In the past, these features have not limited Ford Credit's ability to use securitization to fund its operations.