June Consumer ABS Market Update

Monthly Commentary

July 11, 2018

Primary

  • New issue totaled close to $20B in June, bringing the YTD total to $132B. Auto related led the way with 43% of the new issuance, while off-the-run ABS, which included aircrafts and cell towers, was second with 34%. A flattening of the credit curve continues to be the theme as investors seek for higher yielding opportunities in the lower parts of the capital structure. This in turn has led AAA rated bonds to be a bit softer than where they were earlier this year.
  • Highlights include:
    • Volkswagen returned to the ABS market for the first time since pausing in 2014 due to the emission scandal. The $1.3B prime auto deal was well subscribed with the AAA bonds pricing at: 1.2yr at 18/e, 2.5yr at 25/n, and 3.4yr at 34/n
    • Trinity, a manufacturer of railcars, priced a $482mm transaction with the 5yr A rated tranche pricing at 90/n and the 10yr A rated pricing at 165/n
    • Triton, an issuer of marine containers, launched a $368mm deal. The 5yr senior bond priced at 128/n while the 5yr subordinate bond priced at 215/n
    • LendingClub brought its second deal of the year. The transaction consisted 3 tranches that priced at: 80/e for the 1yr A rated, 125/n for the 2.6yr BBB rated, and 250/n for the 3.3yr BB rated. The deal was backed by a pool of marketplace loans
    • Hertz launched a $400mm deal that consisted of 3yr and 5yr bonds. The deal priced at the wider end of guidance with the 3yr AAA at 80/n and 5yr AAA at 115/n
    • Mosaic issued a $318mm solar securitization. The 4.8yr A rated priced at 135/n, the 5.2yr BBB at 190/n, and the 5.7yr BB at 315/n

Secondary

  • Secondary volume totaled $24B with dealers net shorter by $550mm according to TRACE. A combination of trade tariff concerns and Italian political turmoil along with investor’s focus on a heavier dose of off-the-run ABS new issuance, caused short high quality benchmark assets to leak wider by 2-4bps. Most of the specialized ABS sectors such as aircrafts and rails, however, fared better with spreads essentially flat. While investors’ search for yield has caused the spread basis between AAA rated and BBB rated bonds to compress, it has also caused the tier basis between different asset classes, such as between auto loans and auto leases, to compress as well.

Spreads

Source: BofA Merrill Lynch Global Research

 

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