Consumer ABS Market Update

Monthly Commentary

June 07, 2016


  • The ABS market was open for business in May after the dearth of new issuance the previous two months following the volatility at the beginning of the year. ABS sponsors brought a total of $22.8bn in new issue easily surpassing any of the previous months’ volume year to date. Auto-related ABS continues to comprise the largest portion at nearly 56% of total new issuance followed by 13% in credit cards, 6% in student loans, and 12% in specialized ABS.
    • Taco Bell Funding (Bell) priced a $2.3bn whole business transaction on May 4, 2016 at 275bps over swaps for the 4.0 yr, single-A rated bonds to 336bps over swaps for the 9.6 year, BBB rated bonds. Whole business securitizations are typically collateralized by virtually all its assets including but not limited to franchise fees, intellectual property, and sometimes real estate. Taco Bell’s transaction was upsized on strong demand and promptly tightened in roughly 10bps across all three tranches in the secondary market.
    • Social Professional Loan Program (SOFI) priced a $380mn private student loan refinancing transaction on May 20, 2016 at 80bps over swaps for the AAA rated 1.1 year notes to 225bps over swaps for the single-A rated 8.3 year notes. This marked the first time SOFI was able to receive AAA ratings on its transaction.
    • HERO Funding Trust (HERO) priced a $305mm Property-Assessed Clean Energy (PACE) transaction on May 25, 2016 at 225bps over swaps for the AA rated, 6.84 year bonds. HERO’s 2016-2 marked the seventh transaction and largest deal to date.


  • Liquid, high quality credit card, and prime auto loan ABS spreads ratcheted in another 3-8bps during the month driven by a lack of supply and currently stand at levels not seen in quite some time. Non-downgrade watch Federal Family Education Loan (FFELP) student loan ABS and private student loan ABS rallied anywhere from 10-15bps in May, while container bonds are 30-50bps tighter from the widest prints last seen in February.

Market News

  • Negative headlines surrounding Lending Club and the consumer unsecured marketplace lending sector grabbed a great deal of attention in May. By the end of the month, Lending Club’s CEO, Renaud Laplanche had resigned due to events stemming from a $22 million loan sale where Lending Club knew the loans did not meet the investor’s specific criteria and Laplanche’s lack of disclosure of a personal investment in a fund the company was evaluating. The company also announced the Department of Justice (DOJ) served a criminal subpoena.
  • The New York Fed released its quarterly report on household debt and credit for the first quarter 2016. The Fed reported Non-household debt increased $20bn from $3.38tn to $3.40tn with student loan, auto loan and credit cards making up $1.3tn, $1.1tn, and $0.7tn, respectively. Following the release of the Fed’s quarterly report on household debt, Wilber van der Klaauw, Senior Vice President at the NY Fed debt stated, “Delinquency rates and the overall quality of outstanding debt continue to improve. The proportion of overall debt that becomes newly delinquent has been on a steady downward trend and is at its lowest level since our series began in 1999. This improvement is in large part driven by mortgages.”
  • The Bank of America Merrill Lynch Global Research Bank Card Index showed mostly positive movement on a year over year basis. Charge-offs and delinquencies fell 11bps and 9bps while payment rate and yield increased 33bps and 42bps on a year-over-year basis.

Bank of America Merrill Lynch Global Research Bank Card Index

Source: Bank of America Merrill Lynch Research


Source: JP Morgan Research

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