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Rating Action:

Moody's downgrades Ford Credit's long-term senior unsecured rating to Ba2 from Ba1 and places ratings on review for downgrade

25 Mar 2020

New York, March 25, 2020 -- Moody's Investors Service ("Moody's") has downgraded its ratings for Ford Motor Credit Company LLC (Ford Credit) and its subsidiaries, including the Ba2 long-term senior unsecured rating. All ratings were placed on review for further downgrade, except the Not Prime short-term ratings that were affirmed.

The rating actions follow similar actions on the ratings for Ford Credit's parent, Ford Motor Company (Ford, Ba2 corporate family rating, review for downgrade). Please see separate press release dated 25 March 2020.

The rapid and widening spread of the coronavirus outbreak, the deteriorating global economic outlook and falling oil prices are creating a severe and extensive credit shock across many sectors, regions and markets. The current situation as well as the significant rise in used car prices over the last decade place pressure on the credit strengths of the auto captives, on which we maintain a negative outlook. Moody's believes that delinquency rates, loan defaults and lease residual realization trends will worsen in the next 12-18 months. Moody's notes, however, that US auto captive finance companies are moderately well positioned to weather a level of shock in the system absent meaningful declines in used car prices and a rapid and unexpected deterioration of liquidity at the parent level.

In its analysis, Moody's incorporates the strategic importance of captives to their auto affiliates due to their ability to stimulate auto sales. Auto finance captives are expected to provide a consistent source of purchase financing to dealers and consumers, thereby aiding the auto manufacturers in meeting their sales objectives. The reliance of the auto finance captives on their automotive parents for liquidity remains high, although an important feature of auto finance companies is their ultimate reliance on consumers and dealers to regularly make monthly payments on their loans or leases thereby partially reducing debt outstanding on the asset-backed securitization pools used by the auto captives for a portion of the loans and leases.

To the extent that the capital markets with respect to the unsecured and secured funding contract, captives will have to reduce the new origination volumes although it will be to the disadvantage of the parent as the parent aims to originate new sales once the environment stabilizes at its new normal.

Downgrades:

..Issuer: Ford Motor Credit Company LLC

....Senior Unsecured Regular Bond/Debenture, Downgraded to Ba2 from Ba1; Placed Under Review for further Downgrade

....Senior Unsecured Shelf, Downgraded to (P)Ba2 from (P)Ba1; Placed Under Review for further Downgrade

....Senior Unsecured Medium-Term Note Program, Downgraded to (P)Ba2 from (P)Ba1; Placed Under Review for further Downgrade

....Backed Senior Unsecured Medium-Term Note Program (Local Currency), Downgraded to (P)Ba2 from (P)Ba1; Placed Under Review for further Downgrade

....Subordinate Shelf, Downgraded to (P)Ba3 from (P)Ba2; Placed Under Review for further Downgrade

..Issuer: Ford Credit Canada Company

....Backed Senior Unsecured Medium-Term Note Program, Downgraded to (P)Ba2 from (P)Ba1; Placed Under Review for further Downgrade

....Backed Senior Unsecured Regular Bond/Debenture, Downgraded to Ba2 from Ba1; Placed Under Review for further Downgrade

....Senior Unsecured Regular Bond/Debenture, Downgraded to Ba2 from Ba1; Placed Under Review for further Downgrade

....Backed Senior Unsecured Shelf, Downgraded to (P)Ba2 from (P)Ba1; Placed Under Review for further Downgrade

..Issuer: FCE Bank plc

....Senior Unsecured Bank Credit Facility, Downgraded to Ba2 from Ba1; Placed Under Review for further Downgrade

....Senior Unsecured Medium-Term Note Program, Downgraded to (P)Ba2 from (P)Ba1; Placed Under Review for further Downgrade

....Senior Unsecured Regular Bond/Debenture, Downgraded to Ba2 from Ba1; Placed Under Review for further Downgrade

Affirmations:

..Issuer: Ford Motor Credit Company LLC

....Commercial Paper, Affirmed NP

....Backed Commercial Paper, Affirmed NP

....Other Short Term, Affirmed (P)NP

..Issuer: Ford Credit Canada Company

....Backed Commercial Paper, Affirmed NP

..Issuer: FCE Bank plc

....Backed Deposit Note Program, Affirmed NP

....Commercial Paper, Affirmed NP

....Other Short Term, Affirmed (P)NP

Outlook Actions:

..Issuer: Ford Motor Credit Company LLC

....Outlook, Changed To Rating Under Review From Stable

..Issuer: Ford Credit Canada Company

....Outlook, Changed To Rating Under Review From Stable

..Issuer: FCE Bank plc

....Outlook, Changed To Rating Under Review From Stable

RATINGS RATIONALE

The one-notch downgrade and placement on review for downgrade of Ford Credit's long-term ratings was prompted by similar actions taken on the ratings for its ultimate parent Ford. Ford's weaker credit profile will have negative implications for Ford Credit's access to funding and its financing volumes. Ford's support to Ford Credit is evidenced by a support agreement under which Ford Credit can require Ford to inject capital to restore leverage below an 11.5x debt to equity threshold, should Ford Credit exceed the threshold. As further evidence of support, Ford guarantees any draws by Ford Credit as subsidiary borrower under Ford's revolving credit facility.

Ford Credit's unchanged ba2 stand-alone profile takes into consideration the company's well managed portfolio asset quality and adequate tangible equity to tangible assets capital cushion (8.9% as 31 December 2019), protecting its creditors against unexpected losses. Moody's believes that the capital cushion will remain close to 9.0% under stress case Moody's assumptions. Ford Credit is the only firm in Moody's rated auto captive portfolio that has a relatively limited lease portfolio (19% of managed assets as of 31 December 2019) making it less vulnerable to a potentially rapid decline of used car prices. Moody's expects that Ford Credit's managed receivables ($142 million as of 31 December 2019) will decline but the extent of it is uncertain given the current market environment. Additionally, while historically Ford Credit's debt to equity leverage was managed to within its historical range of 8x to 9x, Moody's believes that the likelihood that Ford Credit will distribute capital to Ford for additional liquidity support is higher than before, even if Ford's liquidity is very good, in Moody's view. Moody's estimates that as a result of the one-notch rating downgrade, the company's cost of debt funding will increase, resulting in narrower finance margins. Additional credit challenges for Ford Credit are its exposure to the performance trends of its parent and its significant use of confidence-sensitive securitization, which Moody's believes will substantially increase in the current environment.

Ford Credit's liquidity is supported by approximately $8.2 billion of available cash (net of $3.5 billion in cash reserves for ABS facilities) as well as $19.3 billion of committed asset backed facilities in addition to availability of $2.2 billion under other unsecured credit facilities ($3bn capacity).

Environmental, social and governance (ESG) factors play an important role in Moody's assessment of Ford Credit's credit quality. As its relationship with Ford is key to its business, the environmental considerations are closely aligned to those of Ford. While the environmental challenges related to tightening emissions regulations in key global markets may not affect Ford's near-term profitability, they could weigh on credit quality of automakers and their captives globally in the longer term. Moody's does not have any particular concerns regarding Ford Credit's governance.

WHAT COULD CHANGE THE RATINGS UP/DOWN

The review for downgrade indicates that ratings upgrades are unlikely over the next 12-18 months. The ratings could be confirmed upon conclusion of the review, if the ratings for Ford are confirmed.

A material decline in asset quality and profitability beyond Moody's current expectations, diminished liquidity, or leverage (TCE/TMA) to less than 8% could lead to lower stand-alone credit profile for Ford Credit. Ford Credit's ratings could be downgraded upon completion of the review if Ford's ratings are downgraded.

The methodologies used in these ratings were Finance Companies Methodology published in November 2019, and Captive Finance Subsidiaries of Nonfinancial Corporations published in August 2019. Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

REGULATORY DISCLOSURES

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Inna Bodeck
VP - Senior Analyst
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Ana Arsov
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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