January Consumer ABS Market Update

Monthly Commentary

February 07, 2019

Primary

  • It took a few weeks for the 2019 new issue ABS market to find its legs coming out of the volatility at the end of December. Only three issuers brought new deals in the first half of the month but a deluge of issuance followed. Investors drove numerous deals to become multiple times oversubscribed in January, driving prices tighter than initial guidance. The $17bn in new issue volume during the month was less than the $22.8bn of new issuance at the same point in 2018. Auto related issuance represented nearly half of all ABS at 48% followed by credit card and specialized ABS at 16% each and student loans at 9%. Among the deals of note were:
  • Ford Credit Auto Owner Trust Revolving (FORDR) priced a $1.299bn revolving, prime auto loan ABS transaction on January 15 at 95bps over swaps for the 4.99-year AAA rated bonds to 125bps over swaps for the 4.99-year AA rated bonds. The deal was upsized and priced anywhere from 5-10bps wide of initial guidance.
  • Mercedes-Benz Auto Lease Trust (MBALT) priced a $1.317bn prime auto lease ABS transaction on January 23 at 28bps over swaps for the 0.85-year AAA rated bonds to 55bps over swaps for the 2.20-year AAA rated bonds. The deal was multiple times oversubscribed and upsized on very strong demand.
  • Hertz Vehicle Financings LLC (HERTZ) priced a $745mn fleet rental car ABS transaction on January 30 at 110bps over swaps for the 3.14-year AAA rated notes to 240bps over swaps for the BBB rated subordinate bonds. Hertz was able to upsize and priced inside guidance on strong demand, particularly the subordinate BBB bonds.

Secondary

  • While the new issue market took time to find its footing to start the year, secondary trading volume was heavy. Spreads started the year wider in sympathy with the broader markets but rallied back in what was a roller coaster of a month. Short, high quality, liquid consumer ABS led the spread tightening in January alongside new issue. The market also saw elevated secondary activity in both senior and subordinate FFELP student loan ABS as well as certain other specialized ABS sectors. Higher rated FFELP subordinate bonds were 10-15bps tighter while senior FFELP student loan ABS spreads ended the month modestly tighter after staying flat during the first half. Aircraft ABS saw significantly higher trading volume to start the year but levels remain wide to where the sector was trading in 2018.

Market News

  • Synchrony keeps Sam’s Club and Amazon Relationships. On January 23, Synchrony announced it would continue its strategic partnerships with Sam’s Club and Amazon. The Synchrony and Sam’s Club partnership began in 1993 and currently offers Sam’s Club co-branded and private-label credit card programs. Synchrony also announced Walmart would drop its lawsuit against the retail card lender. The retailer had been seeking more than $800mn in damages over a dispute regarding Synchrony’s underwriting standards. Credit Card ABS Performance. Bank of America Merrill Lynch’s credit card ABS index showed positive performance on nearly every metric on a year-over-year basis. The payment rate improved 137bps to 28.03% while yield was 80bps higher on a year-over-year basis. Defaults and three-month excess spread increased 12bps and 8bps, respectively month over month..

Consumer ABS

Consumer ABS

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