Consumer ABS Update for December

Monthly Commentary

January 08, 2020

New Issue

  • A total of $3.3bn in new issue ABS priced in December, an 81% drop from November and a 45% drop from December 2018. Volume for the year totaled $230bn, similar to 2018 issuance:
    • Auto-related supply increased y/y by 6% and still accounts for the majority of ABS issuance with 48% of primary volume
    • Credit card issuance declined y/y by 33% and accounted for 10% of primary supply.
    • Student Loan issuance also declined by 22% y/y while unsecured consumer ABS issuance grew 25% and Whole Business ABS supply grew 50% in 2019
    • Amid the rate backdrop, the volume of floating rate issuance declined by 40% reflecting increased demand for fixed vs floating rate bonds
    • Noteworthy issuance in December included:
      • Two Student Loan deals
        • Navient priced a $500mm deal collateralized by private, refinanced student loans (weighted average credit score of 765). The 3.2 year AAA rated note priced at S + 90
        • Nelnet priced a $420mm FFELP deal with the 6.5 year AAA/AA+ rated tranche pricing at L + 100
      • One Whole Business deal
        • Jersey Mike’s priced a $500mm deal backed by franchise fees and royalty payments from 1,599 franchised stores and 16 company-operated restaurants. The 6.9 year BBB rated note priced at S + 270
      • One Subprime Auto deal
        • Carvana priced a $507mm deal backed by auto loans on used cars with a weighted average APR of 13.59%. The 1.6 year AAA rated note priced at e+ 65 and the 4.5 year B2/BB rated note priced at S + 310. Both notes priced 5bps wider than their previous deal, which was issued in September
        • Carvana is an ecommerce company that provides an online platform to buy used cars, including the ability to trade in and finance the purchase via their website

Secondary

  • Secondary spreads in flow ABS were well supported during the month from low primary supply, compelling relative value and a positive macro backdrop. Short, fixed rate prime auto and credit card ABS spreads tightened 2-5 bps over the month while floating rate spreads lagged. Equipment ABS also tightened 5-10 bps over the month
  • FFELP spreads stayed flat to slighter wider due to concerns about LIBOR transition language
  • Aircraft ABS spreads were weaker due to lower all-in yields and Marketplace ABS spreads also widened from poor performance on the underlying loans
  • BWIC supply dropped in December by 40% from November with $4bn in BWIC volume. Dealer inventory was significantly reduced from Oct / November levels with dealers lighter by over $2bn as demand outstripped supply

Consumer News

  • Credit performance in Unsecured Consumer ABS (aka Marketplace Lending) continues to deteriorate. Loans delinquent more than 60 days now range from 1% to 5% depending on FICO scores and annualized loss rates range from 5% to over 20%
  • Due to the poor performance of these loans in a benign economic environment with low unemployment , many Fintech lenders have adopted more conservative underwriting standards by lending to borrowers with higher credit scores, higher incomes and lower debt to income (DTI) ratio

Spreads

Source: JP Morgan Securities LLC

 

 

 

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