DBRS Confirms Ford Auto Securitization Trust 2011-R1

As part of DBRS’s continued effort to provide market participants with updates on an annual basis, DBRS has today confirmed the ratings on the following notes issued by Ford Auto Securitization Trust (the Trust):

-- AAA (sf) on the Asset-Backed Notes, Series 2011-R1, Class A-1
-- AAA (sf) on the Asset-Backed Notes, Series 2011-R1, Class A-2
-- AAA (sf) on the Asset-Backed Notes, Series 2011-R1, Class A-3 (collectively with Class A-1 and Class A-2, the Class A Notes)
-- AA (high) (sf) on the Asset-Backed Notes, Series 2011-R1, Class B
-- A (high) (sf) on the Asset-Backed Notes, Series 2011-R1, Class C
-- BBB (high) (sf) on the Asset-Backed Notes, Series 2011-R1, Class D (collectively, with the Class A, Class B and Class C Notes, the Notes)

The ratings are based on the following factors:

(1) High levels of credit enhancement are available to protect the Notes. Credit protection is provided to all the Notes by a non-amortizing cash reserve account that was seeded with 1.0% of the initial pool balance and that represents 1.5% of the current Notes outstanding as of January 2012.

(2) In addition, the Class A Notes have preferential access to collections arising from the subordination of the Class B, Class C and Class D Notes, equivalent to 10.0% of the outstanding amount of the Notes as of January 2012. Class B and Class C have preferential access to collections, equivalent to 5.7% and 2.9% of the Notes, respectively.

(3) Front-end risk to the repayment of the Notes was addressed in this transaction, with the inclusion of a requirement to maintain an overcollateralization amount calculated as the excess of 1.5% of the current pool balance over 1.0% of the initial pool balance. As of January 2012, the overcollateralization represents 0.1% of the current amount of the Notes outstanding.

(4) Total credit enhancement levels available to the Class A, Class B, Class C and Class D notes have increased to 11.6%, 7.3%, 4.5% and 1.6%, respectively, measured as a percentage of the aggregate outstanding notes balance as of January 2012.

(5) As the initial pool balance was sold to the Trust at a discounted value, the yield supplement overcollateralization amount that was created contributes to the generation of excess spread of approximately 5.6% on an annualized basis to support repayment of the Notes, assuming no losses or requirements to pay the 1.0% replacement servicer fee.

(6) The collateral has performed well since inception and continues to perform within expectations. The average delinquency ratio (30+ days due) since the start of the transaction has been 64 basis points (bps), while the annualized loss ratio has been 27 bps. Cumulative losses as of January 2012 amount to 20 bps of the initial pool balance.

(7) The demonstrated experience of Ford Credit Canada Limited (FCCL) in the origination and servicing of retail auto loan securitization transactions backed by those assets.

(8) The performance guarantee provided by FCCL’s parent, Ford Motor Credit Company LLC.

(9) A high number of loans are greater than 60 months, resulting in longer periods of exposure to potential losses.

The net proceeds of the Notes were applied by the Trust to finance the purchase of retail conditional sale contracts secured by new and used cars, light trucks and utility vehicles (the Portfolio of Receivables) acquired by FCCL. As some of the loans were originated under special programs that provided for low-rate financing, the average annual percentage rate of the Portfolio of Receivables was not sufficient to cover the funding costs of the Notes issued by the Trust. In order to provide for interest spread, the purchase price paid for the loans by the Trust was based on the net discounted book value.

The Notes pay a fixed rate of interest with monthly repayment of interest and principal based on actual cash flows from the Portfolio of Receivables. The Trust pays interest to all classes of the Class A notes, and then pays interest sequentially to the remaining classes of notes in order of seniority. The Trust pays principal sequentially, beginning with the Class A notes, and will not pay principal on any class of notes until the principal amount of all more senior classes of notes is paid in full. In addition, if a priority principal payment is required on any payment date, the Trust will pay principal to the most senior class of notes outstanding prior to the repayment of interest on the affected subordinated notes on that payment date. Priority principal payments are required when the adjusted pool balance is less than the principal amount of one or more classes of notes. Priority principal payments are also required when any class of notes is not paid in full before its final scheduled payment date.

As the Portfolio of Receivables receives blended monthly payments of principal and interest on a fixed-rate basis, there is currently no requirement to hedge the cash flows for interest rate mismatch since the Notes offered also pay a fixed rate of interest.

Based on the current ratings of FCCL (BB (high) and R-4, with Stable trends), the structure of cash collections includes a mechanism to limit the commingling risk of the servicer that, broadly, requires all amounts collected to be remitted within two business days. Recoveries from charged-off receivables are remitted on a monthly basis net of auction expenses.

If an event of default with respect to a series occurs for a reason other than bankruptcy or insolvency of the Trust, the indenture trustee or a majority of the controlling class for that series may accelerate the notes of the series and declare them to be immediately due and payable. If an event of default with respect to a series occurs because of bankruptcy or insolvency of the Trust, the notes of that series will be accelerated automatically. If the notes are accelerated after an event of default, the priority of payments will change and the Trust will pay interest and principal sequentially by class, beginning with the Class A notes (paying interest on the Class A notes, pro rata, and principal to the Class A notes sequentially, beginning with the Class A-1 notes), and will not pay interest or principal on any Class B, Class C and Class D notes until all more senior classes of notes are paid in full. Essentially, this provides the more senior notes preferential access to the cash flows generated from the Portfolio of Receivables.

The performance and characteristics of the pool and the Notes are available and updated each month in the Monthly Canadian ABS Report (see Related Research).

For more detailed information on the transaction structure, please refer to the rating reports of the Trust at www.dbrs.com.

Notes:
The applicable methodology is Rating Canadian Auto Loan Securitizations, which is available on our website under Methodologies.