Moody’s Ratings has upgraded Ford Credit Auto Lease Trust 2023-B’s Class B notes (FCALT 2023-B), affecting roughly $69 million worth of asset-backed securities (ABS). Strong residual value performance and enhanced credit enhancement are reflected in this upgrade, which bolsters investor trust in the securitized lease contracts supported by Ford Motor Credit Company LLC (NYSE:F), a major participant in the auto finance industry.
- Principal Aspects of Moody’s Upgrade Information: The FCALT 2023-B Class B Notes were improved from their initial definitive rating of Aa1 (sf) on September 19, 2023, to Aaa (sf). An enhanced credit enhancement structure, comprising overcollateralization, a non-declining reserve account, and a sequential pay structure, served as the impetus for the decision.
- Performance of Residual Value: The leasing agreements have shown excellent performance of residual value, reducing possible credit losses.
- No Reaction to Other Classified Categories: Since their potential credit improvements continue to be in line with Moody’s current risk assessment, the remaining classes in this transaction kept their present ratings.
The Significance of the Ratings Upgrade
The main risk associated with auto leasing ABS agreements such as FCALT 2023-B is residual value risk, which arises when cars returned at lease maturity are resold for less than their securitized residual value. For FCALT 2023-B, Moody’s lifetime cumulative net credit loss forecast is 0.35%, which reflects the strength of the underlying lease portfolio.
Potential Factors for Further Upgrades
- Lower Portfolio Losses: A decrease in obligor defaults and improved residual values could strengthen credit performance.
- Stronger Used Vehicle Market: A favorable used car market could enhance residual values, leading to increased investor confidence.
- Resilient Job Market: A stable or growing U.S. job market may lower default rates, ensuring sustained lease payments.
Potential Risks for Downgrades
- Higher Than Expected Defaults: A rise in obligor defaults could increase credit losses.
- Declining Vehicle Values: A weaker used car market may result in greater residual value losses when vehicles are turned in and remarketed.
- Operational Risks: Poor servicing, governance issues, or fraud could negatively impact transaction performance.