Consumer ABS Update for October

Monthly Commentary

November 11, 2019

Primary

October has historically been the heaviest month of the year for primary ABS issuance as sponsors map out their final funding needs before year end. This year, when all the dust settled, over 50 deals totaling $30.5bn in new issue ABS priced during the month. In what seemed like a deluge of deals coming in waves throughout the month, most were well received and tightened on strong demand although a few met with pockets of weakness. At 48% of all ABS new issuance year to date, auto related continues to dominate the consumer ABS landscape followed by credit card, 11%; student loans, 6%; and specialized ABS, 15%. The largest specialized ABS sectors in 2019 thus far have been aircraft lease at $7.7bn followed by whole business, $7.4bn, and cell phone/device payment, $3.8bn. Among the deals of note were:

  • Volkswagen Auto Lease Trust (VWALT) priced a $1.3bn prime auto lease ABS transaction on October 1 at 30bps over swaps for the 1.22 year AAA rated bonds to 50bps over swaps for the 2.55 year AAA rated bonds. The initial loan pool had a roughly even split between new Audi (54%) and Volkswagen (46%) vehicles, a weighted average FICO score of 769, and a weighted average remaining term of 27 months. The 2019-1 deal marked the first Auto Lease ABS from Volkswagen in nearly five years. The deal was upsized from $1.0bn and priced anywhere from 10-12bps inside initial guidance on strong demand.
  • PFS Financing Corp (PFSFC) priced a $500mn insurance premium finance ABS transaction on October 15 at 55bps over one-month LIBOR for the 1.92 year AAA rated bonds and 65 bps over swap for the 3.01 year AAA rated the bonds. The subordinate bonds priced at 80bps over one-month LIBOR and 85bps over swaps for the 1.92 year and 3.01 year single-A rated bonds. PFS Financing Corp upsized the deal on strong demand and priced at the tight end of initial price guidance.
  • Falcon Aerospace Ltd. (FLCON) priced a $514mn passenger aircraft lease ABS transaction on October 22, 2019 at 3.625% yield or ~205bps over swaps for the 4.69 year single-A rated bonds and 6.75% yield or ~518bps over swaps for the 3.38 year BB rated bonds. The initial pool was comprised of 23 aircraft, appraised at $612mm with a weighted average of 10.4 years and a weighted average remaining lease term of 4.5 years.

Secondary 

A substantial portion of the market’s bandwidth was consumed by the new issue market in October but secondary spreads held in fairly well for the most part over the month. Given the heavy supply, spreads did leak 2-6bps wider in high quality, consumer ABS sectors like prime auto loan ABS and bank credit card ABS. Five year AAA rated FFELP student loan ABS traded roughly 95dm over the month. In specialized ABS, three year Hertz rental car ABS traded in the low 90s basis points over swaps and we saw increased trading activity in long, senior, AAA rated structured settlement ABS which traded roughly in the low 130s basis points over swaps. October saw four new aircraft lease ABS deals come to market and senior, single-A rated aircraft ABS bonds continue to hover in 200-210bps over swaps range and low 300s for BBB rated subordinate bonds.

Market News

Moody’s upgrades Tesla Auto Lease Trust 2018-A. In October, Moody’s upgraded the Class D Notes (originally rated Baa2) to Aaa and the Class E notes (originally rated Ba3) to Aa2 citing,  “strong residual value performance of the underlying lease contracts and accretion of credit enhancement due to the sequential pay structure in addition to non-declining reserve account and overcollateralization.” 

Credit Card ABS Performance. Bank of America Merrill Lynch’s credit card ABS index reported a 2.30% default rate, the highest print since May when defaults were 2.47% . The index also showed the payment rate for September improving 195bps on a year-over-year basis along with yield and three-month excess spread showing improvement 87bps and 54bps, respectively, year over year. Bank of America also reported ten of the 23 credit card ABS trusts it tracks showed increases in credit card balances on a year-over-year basis. 

Bank of America Merrill Lynch Global Research Credit Card ABS Index]

Source: Bank of America Merrill Lynch Research

Spreads

Source: Bank of America Merrill Lynch Research

 

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