Consumer ABS Update for November

Monthly Commentary

December 06, 2019

Primary

  • Nearly $19B in ABS was issued in November, bringing YTD supply to $237B. Sentiment overall was very positive with investors continuing to allocate into the sector, driving a number of deals to upsize and/or to price tighter than initial guidance. Autos led the way with close to 60% of the issuance, followed by more esoteric sectors in whole business at 7%, and aircraft at 6%.
  • A few highlights include:
    • Hertz, the car rental company, upsized its transaction from $505mm to $800mm on better than expected interest and priced the three tranches tighter than initial guidance. The 5yr AAA priced at 113/n, while the two subordinate tranches priced at 150/n and 190/n
    • Dominos priced a $675mm 9yr whole business deal at 195/n. The pricing level was 20bps better than guidance as the deal saw strong demand. The issuance allowed for the issuer to increase its overall leverage
    • Santander, an originator of subprime auto loans, introduced its first revolving deal. The structure allows for the issuer to add additional receivables to a revolving pool of subprime auto loans. The deal included 5yr tranches rated from AAA to BBB and priced at 100/n, 130/n, 150/n, and 190/n for the AAA, AA, A, and BBB tranches respectively
    • LendingClub, the marketplace consumer loan originator, issued its third deal of the year. The $340mm transaction included three tranches that priced at 90/e for the A rated, 190/n for the BBB, and 315/n for the BB
    • GE Capital Aviation Services brought a $446mm aircraft deal backed by 20 narrowbody aircrafts. The senior tranche with a 5yr weighted average life (WAL) priced at roughly 200/n with the two subordinated pieces pricing at roughly 307/n and 520/n
    • Napier Park issued a railcar deal with a capital structure consisting of shorter 2yr WALs to longer 10yr WALs. The A rated tranches priced at 130/n, 160/n, and 220/n for the 2yr, 5yr, and 10yr respectively, while the 10yr WAL BBB subordinate piece priced at 350/n and the BB at 500/n

Secondary

Spreads in secondary took cues from the strength seen in primary, leading to tightening across many sectors in ABS. Flow products in cards and autos tightened 2-4bps, while car rentals moved in 5-10bps. FFELP, on the other hand, remains soft with the sector widening out 5-10bps. Aircraft remained steady, trading in the +200 area despite heavy issuance in primary over the past couple of months

Market News

The Department of Education revised its College Scorecard, adding, for the first time, median earnings and median debt of a school’s graduates by program type. This new feature allows prospective students to compare the earnings of graduates in a particular field of study across different colleges. The updated scorecard also includes graduation rates by student types, such as full-time or part-time.

Banks reported a tightening of standards on credit cards and consumer loans, according to the Senior Loan Officer Opinion Survey report from the Federal Reserve. The report also showed that banks were less willingly to approve credit card and auto loans to applications with FICO scores of 620 and below. Reasons cited include concerns about the borrowers’ ability to make payments and a more uncertain economic outlook.

Spreads

 

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