Ford Credit Auto Lease Trust 2017-B

Transcription

1 Presale: Ford Credit Auto Lease Trust 2017-B This presale report is based on information as of Oct. 19, The ratings shown are preliminary. This report does not constitute a recommendation to buy, hold, or sell securities. Subsequent information may result in the assignment of final ratings that differ from the preliminary ratings. Preliminary Ratings Class Preliminary rating(i) Type Interest rate(ii) Preliminary amount (mil. $)(iii) Legal final maturity date A-1 A-1+ (sf) Senior Fixed Nov. 15, 2018 A-2a/A-2b(iv) AAA (sf) Senior Fixed/floating June 15, 2020 A-3 AAA (sf) Senior Fixed Dec. 15, 2020 A-4 AAA (sf) Senior Fixed Feb. 15, 2021 B AA (sf) Subordinate Fixed March 15, 2021 C NR Subordinate Fixed May 15, 2022 (i)the rating on each class of securities is preliminary and subject to change at any time. (ii)the interest rates will be determined on the pricing date. (iii)the actual size of these tranches will be determined on the pricing date. (iv)the class A-2 notes will be issued as a combination of fixed-rate notes (class A-2a) and floating-rate notes (class A-2b). The principal amount allocation between the two tranches will be determined on or before the pricing date. The trust expects that the principal balance of the class A-2b notes will not exceed $220.0 million. NR--Not rated. Profile Expected closing date Oct. 30, Collateral Prime auto lease receivables. Titling companies CAB East LLC and CAB West LLC. Servicer and sponsor Ford Motor Credit Co. LLC (BBB/Stable/A-2). Primary Credit Analyst: Jennie P Lam, New York (1) ; jennie.lam@spglobal.com See complete contact list on last page(s) OCTOBER 19,

2 Profile (cont.) Depositor Issuer Collateral agent Administrative agent Indenture trustee and bank account provider Owner trustee Lead underwriter Credit Enhancement Summary Ford Credit Auto Lease Two LLC. Ford Credit Auto Lease Trust 2017-B. HTD Leasing LLC. U.S. Bank N.A. U.S. Bank N.A. The Bank of New York Mellon Citigroup Global Markets Inc B 2017-A Class A credit enhancement Initial(i) Target(i) Floor(i) Initial(i) Target(i) Floor(i) Subordination (%) Overcollateralization (%) Reserve account (%) Total (%) Class B credit enhancement Subordination (%) Overcollateralization (%) Reserve account (%) Total (%) Class C credit enhancement Subordination (%) Overcollateralization (%) Reserve account (%) Total (%) Estimated excess spread per year (%)(ii) Discount rate (%) Initial aggregate securitization value ($) 1,248,455,516 1,126,132,554 Total securities issued ($) 1,108,620,000 1,000,000,000 (i)all percentages are based on the initial aggregate securitization value. (ii)estimated excess spread per year before pricing. --Ford Credit Auto Lease Trust. Rationale The preliminary ratings assigned to Ford Credit Auto Lease Trust 2017-B's ( 2017-B's) $1.056 billion asset-backed notes series 2017-B reflect our view of: The availability of approximately 27.2% and 22.9% credit enhancement for the class A and B notes, respectively, in the form of 8.70% and 4.20% subordination; 11.20% overcollateralization, which will build to a target of 13.70% of the initial securitization value; a 0.50% nonamortizing reserve account; and excess spread (all percentages are measured in terms of the pool's initial aggregate securitization value). OCTOBER 19,

3 The credit quality of the underlying collateral, which consists of prime auto lease receivables that have a weighted average FICO score of 751. The diversified mix of vehicle models and types in the pool. The expected timing of the residuals' maturities. The historical residual retention values of vehicles in the pool. The Automotive Lease Guide's (ALG's) forecast of each vehicle's residual value at lease inception and of current residuals. The timely interest and full principal payments by the notes' legal final maturity dates made under cash flow scenarios that were stressed for credit, residual, and incentive program losses that are consistent with the assigned preliminary ratings. The transaction's payment and legal structures. Our expected base-case credit loss for the 2017-B pool is 0.75%-0.85% of the securitization value, unchanged from 2017-A. Our expected cumulative net loss range reflects the credit performance of Ford Motor Credit Co. LLC's (Ford Credit's) auto lease securitizations, our static pool loss projections for its lease originations, 2017-B's collateral composition, peer comparisons, and a forward-looking view of the economy. Our 'AAA' stressed scenario for credit losses is approximately 4.0% of the securitization value. Our 'AAA' residual stress for the 2017-B pool is approximately 31.9% of the pool's aggregate undiscounted base residual value. After applying this stress to the residual value portion of the pool (74.78%) and the portion of nondefaulting leases (92.0%) under this scenario, our 'AAA' residual stress constituted approximately 22.0% of the securitization value. Likewise, our 'AA' residual stress for the 2017-B pool is approximately 25.4% of its aggregate undiscounted base residual value. After applying this stress to the residual value portion of the pool and the nondefaulting leases (92.8%), our 'AA' stress was approximately 16.9% of the securitization value. Overall, our aggregate 'AAA' and 'AA' loss levels are 26.4% and 20.4%, respectively, of the securitization value. These levels include our stressed losses for waived payment risk. In our view, the credit enhancement outlined above (and in the Cash Flow Modeling section) provides adequate support for our assigned preliminary ratings. Changes From 2017-A The only structural and credit enhancement change from the series 2017-A transaction was the increase in the securitization discount rate to 7.40% from 7.20%. The collateral composition changes from 2017-A are: The weighted average FICO score increased to 751 from 747. The percentage of leases with an original term between months increased slightly to 79.8% from 77.6%. The percentage of leases with an original term between months decreased to 6.9% from 8.6%. The percentage of leases with an original term between months decreased slightly to 13.2% from 13.7%. Lease terms of months remain at approximately 0.1%. The top three model concentrations (Escape, F-150, and Explorer) increased to 57% from 52%. In our view, the series 2017-B pool's collateral characteristics are not materially different from that of series 2017-A's OCTOBER 19,

4 pool. Transaction Overview 2017-B is Ford Credit's 13th public auto lease transaction since B's transaction structure incorporates an initial reserve amount of 0.50% of the initial securitization value; an overcollateralization amount of 11.20% that builds to a target of 13.70% of the initial securitization value; subordination of 8.70% and 4.20% for the class A and B notes, respectively; and estimated excess spread of approximately 4.18% per year. The transaction uses a sequential payment method in which no hard credit support is released from the transaction until all of the rated notes are paid in full. Excess spread, however, can be released if overcollateralization has reached its target level and if the funds are not necessary to cover payments according to the payment priority. Legal Structure Ford Credit's titling companies (CAB East LLC and CAB West LLC) purchase newly originated leases and the related leased vehicles from Ford and Lincoln dealers. The leased vehicles are titled in the respective titling company's name, and the collateral agent is named as the secured party on the title certificate. The titling companies will issue to Ford Credit an exchange note that will be backed by a reference pool of leases and leased vehicles they purchased from dealers. The reference pool will have an initial total securitization value of $1,248,455,516, and the exchange note will have an initial balance of $1,142,907,216. The exchange note is secured by a security interest in and is payable from the collections on the leases and the related leased vehicles in the designated reference pool. Ford Credit will sell the exchange note related to the 2017-B collateral to Ford Credit Auto Lease Two LLC, the depositor, in a true sale. The depositor will then sell the exchange note to 2017-B, a newly formed Delaware statutory trust, in a second true sale (see chart 1). The trust finances this purchase by issuing asset-backed notes, which are secured under an indenture between the issuer and the indenture trustee. The owner trustee pledges all rights under the exchange note, including the rights to payments due on the exchange note, and the collateral to the indenture trustee to secure payments on the asset-backed notes. OCTOBER 19,

5 Pension Benefit Guaranty Corp. (PBGC) Risk Each titling company grants a security interest in all newly originated leases and leased vehicles to HTD Leasing LLC, a third-party collateral agent. The security interest in the leases is perfected by filings under the Uniform Commercial Code, and the security interest in the leased vehicles is perfected by lien notation on the vehicle's title certificate under state motor vehicle registration laws. S&P Global Ratings expects to receive an opinion of counsel to the issuer, subject to customary assumptions and qualifications, to the effect that the collateral agent's security interest in the leases and leased vehicles would be before a lien in favor of the PBGC and notice of which will be filed after the series 2017-B notes are issued. A PBGC lien could be imposed against the assets of any member of the Ford Motor Co.-controlled group in the event of unpaid minimum contributions to a defined benefit pension plan required by law or if an underfunded defined benefit pension plan terminates. OCTOBER 19,

6 Payment Structure Payment priority for the exchange note On each payment date, the indenture trustee will apply collections from the reference pool and the amounts on deposit in the reserve account, if necessary, to make payments on the exchange note according to a specific payment priority (see table 1). The yield in item 2 in the exchange note payment waterfall will be equal to the yield due to the asset-backed notes plus the senior fees and expenses related to those notes. Table 1 Exchange Note Payment Waterfall Priority Payment 1 The servicing fee (1% of the securitization value per year) and reimbursement of any outstanding advances to the servicer. 2 Interest due on the exchange note to the trust as the exchange noteholder. 3 The amount needed to cover shortfalls in payments on the asset-backed notes to the trust as the exchange noteholder. 4 The amount needed to reach the targeted reserve amount to the reserve account. 5 Principal on the exchange note (equal to the excess of the 2017-B notes principal balance over the securitization value minus the target overcollateralization amount) to the trust as the exchange noteholder. 6 An amount to be applied as a shared amount regarding any other exchange note, other than the exchange note owned by the trust, if there has been a failure to pay principal or interest owed on another exchange note. 7 Any remaining amounts to the trust to be applied as the excess exchange note amounts. --Ford Credit Auto Lease Trust. Payment priority for the asset-backed notes On each payment date, the indenture trustee will apply all amounts received on the 2017-B exchange note to make payments on the asset-backed notes according to a specific payment priority (see table 2). Once the targeted reserve amount is achieved, the excess spread will be released to the residual interestholder to the extent it is not needed to cover losses. Table 2 Asset-Backed Notes Payment Waterfall Priority Payment 1 All payments due and any trust expenses, capped at $250,000 per year, to the indenture trustee, owner trustee, and asset representation reviewer. 2 The administration fee (0.01% of the note balance per year) to the servicer. 3 The interest due on the class A notes to the class A noteholders. 4 First-priority principal payment, equal to the excess, if any, of the class A notes' aggregate principal amount over the securitization value, payable sequentially by class. 5 The interest due on the class B notes to the class B noteholders. 6 Second-priority principal payment, equal to the excess, if any, of the class A and B notes' aggregate principal amount over the securitization value, payable sequentially by class. 7 The interest due on the class C notes to the class C noteholders. 8 An amount to the reserve account until the target reserved amount is reached. 9 Regular principal payment, which is equal to the excess of the class A, B, and C notes' aggregate principal amount over the securitization value minus the target overcollateralization amount, minus any priority principal payments, payable sequentially by class. 10 Any amount due and unpaid to the indenture and owner trustees that are not paid in item 1 in this payment waterfall. OCTOBER 19,

7 Table 2 Asset-Backed Notes Payment Waterfall (cont.) Priority Payment 11 Any remaining amounts to the trust's residual interestholder. Managed Portfolio Performance For the six months ended June 30, 2017, Ford Credit's total serviced lease portfolio consisted (on average) of 1,007,554 contracts totaling $ billion (see table 3). Net losses as a percentage of the average portfolio outstanding were 0.38%, up from 0.28% the prior year. Total delinquencies were stable, as a percentage of the average number of contracts outstanding, at 0.83% as of June 30, 2017, compared with 0.82% the prior year Vehicle return rates have steadily increased since 2015 with current levels of around 76% as of the six months ended June Ford Credit's total serviced lease portfolio as of June 30, 2017, reported a slight residual loss on returned vehicles that equaled 0.36% of the vehicles' ALG-forecast base residual value. Table 3 Managed Portfolio Six months ended June 30 Year ended Dec Avg. no. of contracts outstanding 1,007, , , , , , ,935 Avg. portfolio outstanding during the period (mil. $) 26,530 25,009 25,506 22,066 18,554 14,843 10,828 Avg. delinquencies as a % of the average number of contracts outstanding Repossessions as a % of the avg. no. of contracts outstanding Net losses/(gains) as a % of the avg. portfolio outstanding (0.06) Return rate (%) Total gain/(loss) on ALG base residuals on vehicles returned to Ford Credit as a % of the ALG's base residual value of returned vehicles sold by Ford Credit ALG--Automotive Lease Guide. Ford Credit--Ford Motor Credit Co. LLC. (0.36) Securitization Performance Ford Credit's auto lease securitizations have consistently demonstrated stable credit loss performance. Cumulative net credit losses on Ford Credit's paid-off transactions from series 2009 to 2014 ranged from 0.18% to 0.44% (see chart 2). Current cumulative net loss performance on the outstanding transactions from series 2015-A to 2017-A range from 0.05%-0.41%. In addition, Ford Credit has realized either residual value gains or low residual losses on its securitizations (see chart 3). OCTOBER 19,

8 Chart 2 OCTOBER 19,

9 Chart 3 We currently maintain ratings on four transactions: series 2015-A, 2015-B, 2016-A, and 2017-A, which are performing within our expectations (see table 4). In our opinion, all of the outstanding transactions remain adequately enhanced at their current rating levels. We will continue to monitor each outstanding transaction's performance to determine if any rating action is deemed appropriate. Table 4 Performance Data For Outstanding Transactions As Of The September 2017 Distribution Date Series Month Pool factor (%) Current cumulative net credit losses (%)(i) Current cumulative net residual loss (gain) (%)(ii) 2015-A (0.49) 2015-B (0.67) 2016-A (0.44) 2017-A (0.18) (i)as a percentage of the aggregate initial securitization value. (ii)as a percentage of the initial base residual value. --Ford Credit Auto Lease Trust. OCTOBER 19,

10 Pool Analysis The series 2017-B securitized pool consists of 52,766 prime auto lease receivables with a weighted average FICO score of 751 (see table 5). Approximately 93% of the pool consists of leases with 36- to 39-month original terms. The top five vehicle models represent approximately 77% of the initial base residual value. Ford Credit has excluded from the pool any leases with lessees who have billing addresses in the counties that are subject to a major disaster declaration as of the cut-off date by the Federal Emergency Management Agency (FEMA). Before the closing date, Ford Credit may offer extensions to lessees in the securitized pool located in any county that is subject to a major disaster declaration by FEMA. Ford Credit will reallocate from the securitized pool the leases of the lessees that accept those offered extensions if it results in the lease being extended for more than three monthly payments. Table 5 Original Pool Characteristics 2017-B 2017-A 2016-A 2015-B 2015-A 2014-B 2014-A No. of leases 52,766 47,870 48,082 47,223 47,445 68,977 63,870 Initial total securitization value ($) Avg. securitization value ($) 1,248,455,516 1,126,132,554 1,126,158,995 1,126,137,291 1,126,139,672 1,689,193,621 1,560,634,970 23,660 23,525 23,422 23,847 23,736 24,489 24,435 New vehicles (%) Top five vehicles by model (%)(i) Escape F Explorer Fusion Edge Base residual value ($) 933,550, ,871, ,375, ,099, ,684,381 1,211,588,268 1,146,236,008 Avg. base residual value ($) Weighted avg. original term (mos.) Weighted avg. remaining term (mos.) Weighted avg. seasoning (mos.) Original term (mos.) 17,692 17,545 17,187 17,705 17,614 17,565 17, OCTOBER 19,

11 Table 5 Original Pool Characteristics (cont.) Weighted avg. FICO score Base residual as a % of the initial aggregate securitization value Base residual as a % of the adjusted MSRP 2017-B 2017-A 2016-A 2015-B 2015-A 2014-B 2014-A Top five state concentrations (%) MI=21.1 MI=19.3 MI=16.4 MI=19.1 MI=20.9 MI=17.2 MI=27.3 NY=13.8 NY=12.3 NY=12.2 NY=12.1 NY=12.2 NY=13.7 NY=11.9 CA=11.3 CA=11.2 CA=11.0 CA=10.9 CA=10.5 CA=10.9 CA=9.5 NJ=8.2 NJ=7.5 NJ=7.7 NJ=7.2 NJ=7.2 NJ=8.1 NJ=7.1 OH=7.7 OH=7.0 OH=7.5 OH=7.0 OH=6.9 OH=7.7 OH=6.7 (i)as a percentage of the initial aggregate base residual value. --Ford Credit Auto Lease Trust. MSRP--Manufacturer's suggested retail price. Residual Value The notes that are being issued to finance the 2017-B pool will be secured by an exchange note that is backed by a pool of leases (and the related leased vehicles) with a securitization value of $1,248,455,516. The leases' securitization value equals the present value of each lease's remaining monthly lease payment plus the related leased vehicle's base residual value (both discounted at the higher of 7.40% and the contract annual percentage rate). Each leased vehicle's base residual value will equal the lower of: The stated residual value set by Ford Credit at the lease's inception and The residual value estimate established by ALG for the leased vehicle at lease origination. The stated residual value is the vehicle's assigned residual value at the lease's inception (per the lease contract), which then determines the monthly lease payments. The stated residual value is typically set higher than ALG's residual value to reduce the dollar amount of lease payments that the lessee owes under the lease contract. The base residual value provides a more conservative estimate of the vehicle's future value and mitigates noteholders' exposure to losses associated with stated residual values that are set higher than the expected residual values (a process called lease subvention). The base residual is $933,550,169, or 74.78% of the 2017-B pool's securitization value. A recent ALG mark-to-market valuation provided by Ford Credit indicates a residual value forecast of 3.55% lower than the base residual. In our residual value risk analysis, we account for ALG's recent mark-to-market valuation by reducing the base residual for the negative drift (see S&P Global Ratings' Expected Loss for more information). OCTOBER 19,

12 Collateral Residual Timing The leases in the 2017-B pool are scheduled to mature as shown in table 6. Table B Lease Maturity Profile By Year(i) Year (%) (i)percentage of the aggregate undiscounted base residual value. --Ford Credit Auto Lease Trust 2017-B is diversified in terms of monthly residual maturities. In general, leases will mature each month beginning March 2018 (see chart 4). Residual maturities in the pool exceed 5.0% every month from November 2019 through July The highest monthly maturity is 5.92% and is expected to occur in April The highest percentage of base residual maturities in any three-month period is 17.12%, which will occur in June Over 80% of the lease residuals will mature in Chart 4 OCTOBER 19,

13 S&P Global Ratings' Expected Loss In our view, the 2017-B transaction has three principal risk components: credit, residual, and waived payment risk. Credit risk The obligor's credit profile determines the credit risk. To derive the base-case credit loss for the series 2017-B transaction, we used static pool credit loss data that Ford Credit provided to project losses on its portfolio of lease originations segmented by credit tier, vehicle type, and lease term. We weighted the projections by the actual concentration of those various segments in the series 2017-B pool. We also considered the consistent and stable loss performance of Ford Credit's auto lease securitizations, peer performance, the series 2017-B pool's collateral credit quality compared with other pools and peer collateral pools, and our forward-looking view of the economy. Based on this information, we expect the cumulative net credit loss for the series 2017-B pool to range from 0.75%-0.85% of the pool's securitization value. Residual risk The transaction's residual risk is partially mitigated because the securitized residual value is equal to the lower of the lease contract residual value and the ALG residual value at origination. Securitizing the lower of these two values mitigates the risk associated with contract residual values that are set higher than the expected residual values to keep the monthly lease payments affordable to the lessee. In analyzing the series 2017-B pool's residual risk, we considered the following factors: The diversity of the pool's vehicle makes and models; The stability of historical used vehicle values on the top vehicle makes and models; The top nine vehicle models, which account for approximately 92% of the series 2017-B pool's total base residual; ALG's historical and current forecasts compared with the historical actual vehicle retention values per data that Ford Credit provided; The basis for the differences between the actual used vehicle values and ALG's forecasts; The basis for ALG's current forecast; The lease maturity profile of the series 2017-B pool; Brand perception; The consistency of the manufacturer's suggested retail price valuation; and Our macroeconomic outlook. Base haircut According to our auto lease criteria, we first applied initial rating-specific haircuts of 26.0% and 20.0% to the series 2017-B pool's base residual value, commensurate with 'AAA' and 'AA' rating scenarios, respectively. We also added a 3.55% haircut to the base residual to account for ALG's current mark-to-market forecast, which indicates a residual drift or loss from the base residual because this was not reflected in the pool's base residual. Excess concentration haircut In addition to the aforementioned base residual haircuts, we applied a haircut to the amount of nondefaulted lease residuals exceeding the concentration limits applicable to the benchmark pool (excess concentrations), as outlined in OCTOBER 19,

14 our auto lease criteria. The haircuts to excess concentrations are 13% and 10%, commensurate with 'AAA' and 'AA' rating scenarios, respectively. The series 2017-B pool has a total excess concentration of 18.48%, which comprises 4.09% monthly residual maturities in excess of our benchmark and 14.39% vehicle segment excess concentration related to full-size and mid-size SUVs, full-size pickups, and vans (see table 7). The pool is diversified by vehicle model concentration; therefore, we did not apply an additional haircut on these items. Table 7 Benchmark Pool Excess Concentrations (%)(i) 2017-B Benchmark pool concentration limit Excess concentration One-month maturity exceeding the benchmark November December January February March April May June July Individual model Escape (top model) Full-size and mid-size SUVs, full-size pickups, and vans Compact and hybrid cars New and discontinued models Total excess concentration (i)as a percentage of the initial aggregate base residual value. The 18.48% total excess concentration is multiplied by the relevant haircut to arrive at the additional haircut percentage at each rating category, resulting in an additional 2.40% and 1.85% base residual haircut under our 'AAA' and 'AA' rating scenarios, respectively. Speculative-grade manufacturer haircut We also look at the auto manufacturer's creditworthiness when determining the stress applied to the adjusted base residual value. Our auto lease criteria apply haircuts to the base residual value of the vehicles produced by manufacturers that have speculative-grade corporate credit ratings (i.e., 'BB+' or lower). Ford Motor Co. is the manufacturer of the leased vehicles backing the 2017-B pool. The current long-term corporate credit rating on the company is 'BBB''. Based on the corporate credit rating on Ford Motor Co., we did not need to apply a speculative-grade manufacturer haircut to the series 2017-B transaction under our auto lease criteria. OCTOBER 19,

15 Low diversification haircut For pools with low diversification, as described in our auto lease criteria, we will apply a low diversification haircut factor of 1.25x in addition to the aforementioned haircuts. Our auto lease criteria describe the six conditions for which, if met by the securitized lease pool, we would apply this type of haircut. These conditions are: More than 20% of the residuals mature in any one month; More than 50% of the residuals mature in any three months; The pool contains three or fewer individual models; The pool contains more than 75% of full-size and mid-size SUVs, full-size pickup trucks, and full-size vans combined; The pool contains more than 75% of compact and hybrid cars combined; and The pool contains more than 20% of new and discontinued models combined. The 2017-B pool does not meet any of these six conditions; therefore, we did not apply the low diversification haircut. Stressed residual loss After analyzing the 2017-B lease pool, applying the relevant residual value haircuts, and assessing stressed return rates of 100% and 95% at the 'AAA' and 'AA' rating levels, respectively (representing the loss frequency on nondefaulted leased vehicles of 92.0% and 93.6%, respectively), we determined that our stressed residual loss is approximately 22.0% and 16.9% under our 'AAA' and 'AA' scenarios, respectively, as a percentage of the initial securitization value (see table 8). Table 8 Stressed Residual Loss Scenario (preliminary rating) AAA (sf) AA (sf) Residual haircut as a % of undiscounted base residual Additional excess concentration haircut (%)(i) Total residual haircut as a % of base residual value Total residual haircut as a % of securitization value (i)the excess concentration haircuts are derived by multiplying the total excess concentration calculated in table 7 by 13% and 10% for each of the rating category, respectively. Waived payment risk The third risk in this transaction, waived payment risk, occurs when, as part of Ford Credit's Early Bird incentive program, a dealer offers the lessee an option to terminate the lease early and waive all remaining lease payments if the lessee agrees to finance a new lease or loan contract with Ford Credit. The dealer then reimburses the trust for the waived payments, and Ford Credit then reimburses the dealer. If Ford Credit enters bankruptcy, we believe a certain percentage of the dealer base may also enter bankruptcy and could continue to waive lease payments to generate additional vehicle sales. These waived payments are a loss to the trust if they are not reimbursed by the dealer who waived the payments. To that end, we incorporated a waived payment risk into our cash flow analysis. We reviewed historical offer and acceptance rates and the number of waived payments offered under Ford Credit's Early Bird program. Our waived payment stress was approximately 0.39% and 0.31% under our 'AAA' and 'AA' rating scenarios, OCTOBER 19,

16 respectively. Cash Flow Modeling We also tested 2017-B's proposed structure using cash flow scenarios to determine if the credit enhancement level was sufficient to pay timely interest and principal in full by the notes' legal final maturity dates under 'AAA' and 'AA' stressed scenarios (see below). We modeled the transaction on a lease-by-lease basis to simulate a stress scenario commensurate with the assigned preliminary ratings. The results show that the preliminary rated notes are enhanced to the degree necessary to withstand a level of stressed credit, residual, and waived payment losses that are consistent with the assigned preliminary ratings. The class A notes can withstand a cumulative credit loss of approximately 4.0% (or approximately 5.0x the midpoint of our expected loss range of 0.75%-0.85%), residual losses of 21.98%, and a waived payment loss of 0.39%, all as a percentage of the initial securitization value (see table 9). The class B notes can withstand a cumulative net credit loss of approximately 3.2% (or approximately 4.0x the midpoint of our expected loss range), residual losses of 16.89%, and a waived payment loss of 0.31%, all as a percentage of the initial securitization value. Table 9 Cash Flow Assumptions And Results Class A Class B Scenario (preliminary rating) AAA (sf) AA (sf) Cumulative net loss (%) Cumulative net loss timing (mos.) 12/24/36 12/24/36 Cumulative net loss (%) 40/80/100 40/80/100 Voluntary prepayments (%) Recoveries (%) Recovery lag (mos.) 4 4 Residual haircut Total residual haircut as a % of the adjusted MSRP(i) Total residual haircut as a % of the securitization value Total residual haircut as a % of the undiscounted base residual value Vehicle return rate (%) Nondefaulting leases (%) Residual realization lag (mos.) 2 2 Waived payment stress as a % of the securitization value (%) Result S&P Global Ratings' stressed credit, residual, and waived payment loss as a % of the securitization value Approximate credit enhancement as a % of the securitization value (i)after adjustment for the vehicle return rate and nondefaulting lease rate. MSRP--Manufacturer's suggested retail price. OCTOBER 19,

17 Sensitivity Analysis In addition to running stressed cash flows to analyze the amount of credit, residual, and waived payment losses that 2017-B can withstand, we ran a sensitivity analysis to determine how these losses, in line with a moderate ('BBB') stress scenario, could affect the preliminary ratings on the notes. According to our ratings stability criteria, we will not assign preliminary 'AAA' or 'AA' ratings if we anticipate that the ratings would decline by more than one rating category in the first year during a moderate stress scenario. We will also not assign preliminary 'AAA' or 'AA' ratings if we anticipate that the ratings would decline by more than three rating categories in a three-year horizon under moderate stress conditions. In our view, under the 'BBB' moderate stress scenario, all else being equal, we would expect our ratings on the class A and B notes to remain within one rating category of the assigned preliminary ratings in the first year and throughout the transaction's life (see chart 5). Chart 5 OCTOBER 19,

18 Money Market Tranche Sizing The proposed money market tranche (the class A-1 notes) has a 13-month legal final maturity date (Nov. 15, 2018). To test whether the money market tranche can be repaid by month 13, we ran cash flows using assumptions to delay the principal collections during the 13-month period. In our cash flow run, we assumed zero defaults and a zero absolute prepayment speed on all leases. We applied a haircut to the base residual in line with our 'AAA' scenario. We also lagged the recognition of the monthly lease payments by one month and base residual amounts by two months. Based on our cash flow runs, approximately 10 months of collections would be sufficient to pay off the money market tranche. Legal Final Maturity To test the legal final maturity dates set for the longer-dated tranches (i.e., classes A-2a/A-2b, A-3, A-4, and B), we determined the date on which the respective notes were fully amortized in a zero-loss, zero-prepayment scenario and then added six months to the result. We also looked to see when these notes would pay off in our stressed cash flow scenarios. In addition, we ran a break-even stress cash flow scenario assuming that the available credit enhancement is used to cover losses and looked to see when the class A-2a/A-2b, A-3, A-4, and B notes would pay off under this scenario. In all of our cash flow scenarios, we confirmed there is sufficient credit enhancement to both cover losses and repay the related notes in full by their legal final maturity dates. Ford Credit Ford Credit, one of the largest auto finance companies in the U.S., was established in 1959 to provide financing for Ford vehicles and support Ford dealers. Ford Credit, headquartered in Dearborn, Mich., is a Delaware limited liability company and is a wholly owned captive finance subsidiary of Ford Motor Co. Ford Credit offers a wide variety of automotive financing products including retail installment sale contracts and leases, business loans, and lines of credit to dealerships that sell Ford Motor Co. products. Related Criteria General Criteria: Methodology For Linking Long-Term And Short-Term Ratings, April 7, 2017 Criteria - Structured Finance - General: Ratings Above The Sovereign - Structured Finance: Methodology And Assumptions, Aug. 8, 2016 Criteria - Structured Finance - General: Methodology: Criteria For Global Structured Finance Transactions Subject To A Change In Payment Priorities Or Sale Of Collateral Upon A Nonmonetary EOD, March 2, 2015 Criteria - Structured Finance - General: Criteria Methodology Applied To Fees, Expenses, And Indemnifications, July 12, 2012 General Criteria: Global Investment Criteria For Temporary Investments In Transaction Accounts, May 31, 2012 Criteria - Structured Finance - RMBS: U.S. Interest Rate Assumptions Revised For May 2012 And Thereafter, April 30, OCTOBER 19,

19 Criteria - Structured Finance - ABS: Revised General Methodology And Assumptions For Rating U.S. ABS Auto Lease Securitizations, Nov. 29, 2011 Criteria - Structured Finance - ABS: General Methodology And Assumptions For Rating U.S. Auto Loan Securitizations, Jan. 11, 2011 Criteria - Structured Finance - General: Standard & Poor's Revises Criteria Methodology For Servicer Risk Assessment, May 28, 2009 Legal Criteria: Legal Criteria For U.S. Structured Finance Transactions: Special-Purpose Entities, Oct. 1, 2006 Legal Criteria: Legal Criteria For U.S. Structured Finance Transactions: Appendix III: Revised UCC Article 9 Criteria, Oct. 1, 2006 Legal Criteria: Legal Criteria For U.S. Structured Finance Transactions: Criteria Related To Asset-Backed Securities, Oct. 1, 2006 Legal Criteria: Legal Criteria For U.S. Structured Finance Transactions: Securitizations By Code Transferors, Oct. 1, 2006 Legal Criteria: Legal Criteria For U.S. Structured Finance Transactions: Select Issues Criteria, Oct. 1, 2006 Criteria - Structured Finance - ABS: Assessing the Risk of Pension Plan Terminations on U.S. Auto Lease Securitizations, Aug. 17, 2004 Related Research Global Structured Finance Scenario And Sensitivity Analysis 2016: The Effects of The Top Five Macroeconomic Factors, Dec. 16, 2016 Ford Motor Co., April 4, 2016 In addition to the criteria specific to this type of security (listed above), the following criteria articles, which are generally applicable to all ratings, may have affected this rating action: "Post-Default Ratings Methodology: When Does Standard & Poor's Raise A Rating From 'D' Or 'SD'?," March 23, 2015; "Global Framework For Assessing Operational Risk In Structured Finance Transactions," Oct. 9, 2014; "Methodology: Timeliness of Payments: Grace Periods, Guarantees, And Use of 'D' And 'SD' Ratings," Oct. 24, 2013; "Counterparty Risk Framework Methodology And Assumptions," June 25, 2013; "Criteria For Assigning 'CCC+', 'CCC', 'CCC-', And 'CC' Ratings," Oct. 1, 2012; "Methodology: Credit Stability Criteria," May 3, 2010; and "Use of CreditWatch And Outlooks," Sept. 14, The primary analyst would like to thank Linda Yeh and Aakansha Khandelwal for their analytical contributions to this presale report. Analytical Team Primary Credit Analyst: Jennie P Lam, New York (1) ; jennie.lam@spglobal.com OCTOBER 19,

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