Ford Credit Auto Lease Trust 2023-B Annual Report - How They Did This Year

Hey there! Thinking about Ford Credit Auto Lease Trust 2023-B? This guide gives you the lowdown on how it performed this year. We'll explain the important details in plain English. This way, you can decide if it fits your portfolio.

Important Clarification for Investors:

Before we dive in, let's clarify what Ford Credit Auto Lease Trust 2023-B is. It's not a typical company like Ford Motor Company where you buy stock. This is a Trust, also called an "asset-backed issuer." Think of it as a special company (a "special purpose vehicle") created by Ford Motor Credit Company LLC (the "sponsor") and Ford Credit Auto Lease Two LLC (the "depositor"). Its main job is to buy a specific group of auto leases. Then, it issues notes or certificates. These are backed by the payments from those leases. Big investors usually buy these securities for steady income.

Important: This Trust has no common stock for regular investors to buy. Its annual report (Form 10-K) differs greatly from a regular company's report. It focuses on managing the leases and making sure rules are followed. So, you cannot buy "stock" in this entity.

1. What does this company do and how did they perform this year?

As we said, Ford Credit Auto Lease Trust 2023-B holds a group of auto leases from Ford Credit. Its main goal is to help Ford Credit get cash now from future lease payments. The Trust's "performance" means it consistently collects payments from these leases. It then promptly sends these funds to those who own its securities.

This annual report (Form 10-K) covers the year ending December 31, 2023. The Trust simply holds assets and passes cash flows through.

What Investors in Trust Securities Look For

Investors in the Trust's securities look at different numbers. They check collection rates on the leases, delinquency and default rates, and prepayment speeds. This means how quickly people pay off or end leases early. They also watch the residual values of the leased vehicles. You usually find these details in monthly or quarterly servicer reports (Form 10-D filings), not in the annual 10-K.

What "Wins" and "Challenges" Mean for Trust Investors

For investors in the Trust's securities, a "win" means getting principal and interest payments consistently and on time. This shows the leases are performing well and are managed effectively. A "challenge" would be more defaults or late payments than expected. It could also mean used vehicle values drop significantly. Any of these could reduce cash flow for security holders.

How to Think About the Trust's Financial Health

The Trust's "financial health" depends on the quality and performance of its auto leases. It also relies on various credit support features built into the deal. These features often include overcollateralization. This means the leases are worth more than the securities issued. There are also reserve accounts, which hold cash for unexpected shortfalls. Finally, subordination means some securities take losses before others. These supports are vital for the Trust to pay its obligations.

Key Risks for Trust Security Investors

This Trust has no common stock, so there's no "stock price" for regular investors. For those who invest in the Trust's securities (like notes or certificates), risks relate to the auto leases and the economy. The prospectus (Form 424B5), issued when the securities were offered, details these risks. Key risks include:

• Credit Risk: Lessees might not make their lease payments. This could reduce cash flow to the Trust.
• Prepayment Risk: Lessees might end their leases early. For example, they could buy the car or return it. This can change how long the securities last and create reinvestment risk for investors.
• Residual Value Risk: The leased vehicles' market value at lease end might be lower than expected. This affects how much the Trust recovers when selling the vehicle.
• Servicer Performance Risk: Ford Motor Credit Company LLC, the Servicer, might not collect payments well. They might also fail to manage defaults or sell vehicles. This could impact the Trust's cash flow.
• Economic Risk: A bad economy, more unemployment, or lower used car values can worsen all these risks.
• Interest Rate Risk: For any floating-rate securities, changes in benchmark interest rates (like SOFR) could affect investor payments.

How the Trust is Managed

The Trust has no employees, directors, or executive officers. The Servicer and Trustee manage its operations, as per the transaction documents.

The Trust's Future

The Trust's "future" is set by the payment schedule of its securities. It's also set by when the underlying lease contracts end.

External Factors Affecting the Trust

The Trust is a passive entity. Its assets' performance is shaped by market trends. These include used vehicle prices, interest rates, and consumer credit. New rules for auto lending or securitization (like Dodd-Frank or consumer protection laws) would mainly affect Ford Motor Credit. They would indirectly impact future lease pools, not this Trust's existing, fixed pool.

What You Will Find in This Report

This report confirms the auto leases are being well-managed. Ford Motor Credit Company LLC (the "Servicer") and U.S. Bank National Association (a "Servicing Participant") both confirmed they follow the rules for managing these leases. The report includes Servicer Compliance Statements (Item 1123 of Regulation AB). Here, the Servicer's management certifies it meets the servicing rules for asset-backed securities.

Independent accounting firms, PricewaterhouseCoopers LLP and Ernst & Young LLP, also confirmed no major issues with lease servicing. These are Attestation Reports (Item 1122 of Regulation AB). The accountants give an opinion on the Servicer's claim of compliance. This matters for investors in these securities. It means the leases are managed as expected. Also, internal controls over servicing work effectively. This assures the securitization's operational soundness.