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Asset-backed comes into its own

Companies are finding it increasingly difficult to fund in orthodox markets. So despite essentially misguided comparisons with the sort of special purpose vehicles put together by Enron, securitization programmes are becoming increasingly popular with borrowers and investors.

THERE WAS A time last year when Ford Motor found itself in what could have been a serious liquidity squeeze. After the downgrade of its long-term debt rating to Baa1/BBB+, it had to more than halve its outstanding in the commercial paper market by the end of 2001 and is looking to cut this by around half again in 2002.

It has pursued a range of alternatives to make up the shortfall. The $5 billion convertible issued in January improved its cash position and Ford Motor Credit has also been more active in the term debt markets, but at a cost. Recently its 6.875% bonds due in February 2006 were trading at Libor plus 221 basis points.

In contrast, Ford Motor Credit's bonds backed by a diverse pool of consumer and dealer loan receivables have been a much better bet. It kicked off this year with a $5.1 billion deal and says that of the $24 billion it expects to borrow this year, $15 billion to $20 billion is planned to be raised in the asset-backed market, which it can now tap at a mere Libor plus 15bp.

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