Moody’s upgrades Ford Credit Auto Lease Trust 2023-B Class B Notes

Investing.com -- Moody’s Ratings has upgraded the Class B notes issued by Ford Credit Auto Lease Trust 2023-B (FCALT 2023-B), impacting around $69 million of asset-backed securities. The notes are backed by a group of retail automobile lease contracts that were originated by Ford Motor (NYSE:F) Credit Company LLC (FMCC (OTC:FMCC), Ba1 stable), which also serves as the servicer and administrator for the transaction.

The ratings upgrade for the Class B Notes of FCALT 2023-B was to Aaa (sf) from a definitive rating of Aa1 (sf) assigned on September 19, 2023. This decision came after a comprehensive review of the credit ratings for the respective transaction(s) during a rating committee.

The reason for the upgrade was an increase in credit enhancement due to the sequential pay structure. This was coupled with a non-declining reserve account, overcollateralization, and strong residual value performance of the underlying lease contracts. No actions were taken on the remaining rated classes in this deal because the available credit enhancement for each class remains commensurate with their current ratings.

The lifetime cumulative net credit loss expectation for the transaction pool of FCALT 2023-B is 0.35%. Auto lease asset-backed securities (ABS) are mainly exposed to residual value risk for vehicles that are turned in at lease maturity instead of being purchased by the lessee at the contractual residual price. This is because these vehicles then have to be remarketed and are subject to risk if the sales price is lower than the securitized residual value.

The ratings could be further upgraded if portfolio losses decline as a result of a lower number of obligor defaults or an increase in the value of the vehicles, leading to a residual value gain when the vehicle is turned in at the end of the lease and remarketed. The portfolio losses also depend greatly on the US job market, the market for used vehicles, and changes in servicing practices.

On the other hand, the notes could be downgraded if losses rise above original expectations due to a higher number of obligor defaults or a decrease in the value of the vehicles, leading to a higher residual value loss when the vehicle is turned in at the end of a lease and remarketed. Poor servicing, errors on the part of transaction parties, inadequate transaction governance, and fraud could also lead to worse than expected performance.

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