Consumer-debt bond volume expected to taper off

By Adam Tempkin and Charles Williams

Oct 12 (IFR) - In what could be one of the last big waves of issuance this year, the asset-backed securities primary market priced US$5.4bn this week.

Despite the fact that next week's pipeline has already begun to build, with at least six new offerings in the hopper, bank syndicate officials say there are not too many "good" weeks left for issuance in the year.

The securitization industry's ABS East conference in Miami is less than two weeks away -- which stalls issuance temporarily -- and with underwriters generally avoiding election week and the Thanksgiving holiday not far behind, banks and investors will soon be closing their books and looking ahead to 2013, according to securitisation specialists.

Moreover, with frequent issuers Hyundai, Honda, Ally, World Omni and Ford already having tapped the market with large deals in recent weeks, issuance is bound to taper off, potentially focusing more on the so-called off-the run and esoteric sectors, as well as smaller auto issuers.

"I don't think the remainder of the year will see issuance at quite the same blistering pace that we've seen over the last few weeks," said Brian Wiele, the head of the US securitization syndicate at Barclays.

"And while demand for paper is still good, it's not the same level of 'food fight' for deals that we saw earlier in the year."


However, the ABS market -- largely driven by payments on auto loans, credit cards and student debt -- will likely be fueled well into 2013 by rising levels of consumer credit, S&P said this week.

The Fed recently reported that US consumer credit rose US$18bn in August, and revolving debt increased US$4.2bn after falling by US$4.8bn in July. Nonrevolving credit, including student and auto loans, continued its trend up, rising US$14bn.

For this reason, S&P predicts steady issuance for the fourth quarter and beyond. Moreover, the spike in auto financing at more attractive rates means that auto ABS will continue to dominate the market going forward.

US ABS issuance year-to-date stands at roughly US$163bn, compared to US$128bn for the full-year 2011.

Roughly half of this year's issuance is made up of auto debt, including loans, leases and auto-dealer floorplan lending.

Indeed, autos accounted for the bulk of this week's trades, with approximately 55% of the volume, followed by student loans, servicer advances and one container-lease deal.

Syndicate officials noted that demand for subordinate slices of auto ABS -- the lower-rated tranches of the deals -- continued to pick up steam this week, as investors were willing to move down in credit to pick up more yield. The drawback, however, has been that increased demand causes spreads to tighten.

"Investors are stretching for yield, so the subs are really going well," Barclay's Wiele said. "Because of this, spreads on subs have been tightening. But those tranches are small, so maybe only five to eight buyers put in orders for each."


The currently competitive auto financing market -- and in turn, improving car sales -- can be traced back to a sizzling hot auto ABS market this year. The past week was no different.

JP Morgan (structuring lead) and Barclays priced the first auto lease transaction of the year this week from Porsche: the US$527.36m 144a PILOT 2012-1. The luxury-car company last priced an asset-backed deal in November 2011.

Meanwhile, two of the more stable and predictable prime auto performers returned to the market this week as investors continued to pour money into the sector because of its safe haven status.

Honda was back for a fourth time as JP Morgan (structuring lead) and Citigroup priced the US$1bn Honda Auto Receivables Owner Trust 2012-4.

Hyundai returned for the third time as Bank of America (structuring lead), Barclays, HSBC and RBC priced the US$1.5bn Hyundai Auto Receivables Trust (HART) 2012-C.

Sallie Mae also tapped the market with a student-loan deal, while Bank of America (structuring lead) and Wells Fargo priced the US$171m CAI Container 2012-1 transaction for a container-lease company, San Francisco-based CAI International.

Barclays (structuring lead) and Wells Fargo priced the US$700m 144a/Reg S HLSS Servicer Advance Receivable Backed Notes, Series 2012-T2 for issuer Home Loan Servicing Solutions.

HLSS is a spin-off of Ocwen Financial Corp, and the transaction was the first off the company's HLSS platform. The company is headquartered in the Cayman Islands.

The transaction is a securitization of "servicer advances". In most RMBS, the servicer is required to advance delinquent principal and interest to the trustee to the extent it is deemed recoverable. Servicers are usually reimbursed for advances, and this reimbursement can sometimes be securitized.

The structured-finance feeding frenzy of recent weeks was apparent in the level of demand: Prior to the deal's official announcement, the issuer had only planned to offer US$300m. The increase to US$700m was the maximum size the company could handle, and was fueled by investors' keen demand for the issue. according to sources close to the deal.

Going forward, HLSS expects to periodically tap the ABS space.

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(Reporting by Adam Tempkin and Charles Williams; Editing by Marc Carnegie)

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