September 2018 Consumer ABS Update

Monthly Commentary

October 10, 2018

Primary

  • Over $14B in ABS was issued in September, bringing the YTD total to $189B. Autos, credit cards, and student loans accounted for over 80% of issuance with autos leading the way at 39%, followed by credit cards at 27% and student loans at 16%. Deals were generally well subscribed, allowing issuers to price at tighter spreads.
  • Highlights include:
    • Navient issued its fourth FFELP deal of the year. The $1B deal was well subscribed with the senior 1yr pricing at 25dm and the 7yr at 68dm, while the subordinate tranche priced at 130dm
    • CAI, a container leasing company, priced a $344mm deal with the senior tranche at 140/n and the subordinate tranche at 230/n
    • Hilton Grand Vacations launched a $350mm timeshare deal. The 3yr deal consisted of AAA, AA, and A rated bonds, pricing at 58/n, 75/n, 105/n, respectively
    • Santander priced a $1.25B deep-subprime auto deal. The transaction included fixed and floating senior 0.4yr AAA tranches that priced at 27/e and 27dm and 1yr AAA bonds that priced at 32/e. The AA, A, BBB bonds priced at 50/e, 75/n, and 115/n respectively. The 115/n pricing is the tightest level for the BBB bond this year
    • Sofi brought a $578mm refi student loan deal. The AAA bonds priced at 27/e for the 1.5yr and 65/n for the 5.5yr, while the subordinate AA bond priced at 110/n
    • LendingClub, the marketplace lender, priced its third deal of the year. The $257mm transaction issued a 1yr A at 73/e, a 2.6yr BBB at 115/n, and a 3.3yr BB at 225/n

Secondary

  • Secondary trading in ABS was very steady and robust with TRACE reporting over $22B in volume. Spreads tightened 3-5bps month-over-month across most subsectors within ABS and the tone remains positive. This was a sentiment echoed at the ABS East Conference where investors continue to search for higher yielding opportunities, leading them to explore more off the run sectors within ABS.

Market News

  • Inspire Brands, the company that owns Arby’s and Buffalo Wild Wings, acquired Sonic for $2.3B
  • Chinese conglomerate HNA Group is seeking a buyer for Seaco, the container leasing company acquired back in 2011 for $1.05B
  • S&P downgraded $3.5B in FFELP ABS. The action took $2.1B to an A rating and $1.4B to a BB rating. Additionally, the rating agency issued a notice to change the criteria for rating FFELP ABS. S&P will then seek comments on the proposed changes before finalizing the criteria
  • The Department of Education released its annual 3-year federal student loan cohort default rate. The report showed the default rate came in at 10.8%, a decrease from last year’s rate of 11.5%

Spreads

Source: BofA Merrill Lynch Global Research

 

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