Ford 2006 Annual Report Download - page 31

Management’s Discussion and Analysis of Financial Condition and Results of Operations
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than are necessary for its immediate funding needs. These excess amounts are maintained primarily as highly liquid
investments, which provide liquidity for Ford Credit's short-term funding needs and give Ford Credit flexibility in the use of
its other funding programs.
Funding. Ford Credit requires substantial funding in the normal course of business. Its funding requirements are
driven mainly by the need to: (i) purchase retail installment sale contracts and retail lease contracts to support the sale of
Ford products, which are influenced by Ford-sponsored special financing programs that are available exclusively through
Ford Credit, (ii) provide wholesale financing and capital financing for Ford dealers, and (iii) repay its debt obligations.
Ford Credit's funding sources include primarily securitizations and unsecured debt. Ford Credit issues both short- and
long-term debt that is held by both institutional and retail investors, with long-term debt having an original maturity of more
than 12 months. During 2006, Ford Credit continued to meet a significant portion of its funding requirements through
securitizations because of their lower relative costs given its credit ratings (as described below), the stability of the market
for asset-backed securities, and the diversity of funding sources that they provide. Securitized funding (both on- and off-
balance sheet, net of retained interests) as a percent of total managed receivables was as follows at the end of each of the
last three years: 2006 – 48%, 2005 – 38%, 2004 – 26%.
Ford Credit obtains short-term funding from the sale of floating rate demand notes under its Ford Interest Advantage
program. At December 31, 2006, the principal amount outstanding of such notes was $5.6 billion. In addition, Ford Credit
issues unsecured commercial paper in the United States, Europe and other international markets, with sales mostly to
qualified institutional investors. Ford Credit does not hold reserves specifically to fund the payment of any of its short-term
funding obligations. Instead, Ford Credit maintains multiple sources of liquidity, including cash, cash equivalents, and
marketable securities (excluding marketable securities related to insurance activities), unused committed liquidity programs,
excess securitizable assets, and committed and uncommitted credit facilities, which Ford Credit believes should be
sufficient for its short-term funding obligations.
The following table illustrates Ford Credit's public and private term funding transactions for 2005 and 2006 and its
planned issuances for 2007 (in billions):
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* Includes securitizations, term debt, and whole-loan sales; excludes Ford Credit's on-balance sheet asset-backed commercial paper programs and
proceeds from revolving transactions.
The cost of securitizations and unsecured debt funding is based on a margin or spread over a benchmark interest rate.
Spreads are typically measured in basis points. Ford Credit's asset-backed funding and unsecured long-term debt costs
are based on spreads over U.S. Treasury securities of similar maturities, a comparable London Interbank Offered Rate
("LIBOR") or other comparable benchmark rates. Ford Credit's unsecured commercial paper and floating rate demand
notes funding costs are based on spreads over LIBOR. Ford Credit's securitized funding spreads (which are based on the
creditworthiness of the underlying securitized asset and enhancements) have not been volatile, while its unsecured long-
term spreads have been volatile over the last three years. During 2006, Ford Credit's spreads on the fixed rate notes
offered in its U.S. public retail securitizations ranged between six and eleven basis points over the relevant benchmark
rates, while its unsecured long-term debt funding spreads as measured by the five-year credit default swap market have
fluctuated between 270 and 585 basis points above LIBOR.