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Investors devour feast of consumer ABS offerings

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By Sasha Padbidri
23 Jan 2018

Investors are showing endless appetite for consumer ABS so far in 2018, with auto, student and marketplace loan deals meeting with huge demand and subprime auto spreads hitting record tights.

The heavy primary market pipeline is remarkable, deal watchers say, as activity is usually more subdued until after the SFIG conference in Las Vegas in February.

“We have already got our hands full here. I think there’s going to be more deal activity than what we have seen prior to previous SFIG conferences,” said a consumer ABS deal adviser.

GlobalCapitalreported on Monday that up to four securitizations from SoFi and Lending Club have been slated to market this quarter. Already, $1.37bn in deals from SoFi and Marlette Funding have priced this month, compared with $1.42bn in deals for the first quarter of 2017.

Analysts writing in Moody’s consumer ABS outlook on Monday said that securitizations backed by online loans in 2018 are more likely to be sponsored by the originating platforms, rather than third party buyers as lenders seek greater control over funding for their loans.

Subprime auto ABS hits ‘record tights’

In the subprime auto sector, analysts at JP Morgan said that strong demand in both the primary and secondary markets has pushed spreads tighter across ABS sectors, with triple-B subprime auto spreads grinding to a new “record tight” of 95bp over swaps, achieved by Santander Consumer’s SDART 2018-1 transaction, which was priced on January 18.

According to JP Morgan data, the previous record tight was held by General Motor’s AMCAR 2014-2 transaction, where the triple-B rated ‘D’ notes were priced at 120bp over swaps.

“Triple-B subprime auto ABS currently offer roughly 35bp spread pick-up on comparable unsecured corporate credit. We see solid fundamental basis for triple-B subprime auto ABS spreads to compress further versus comparable unsecured triple-B corporates,” wrote the analysts in a recent research note.

The analysts noted that unless “politics severely disrupts economics”, the trend of narrowing spreads is expected to continue.

“Broad market volatility may cause bumps along the way, but the trend should be tighter ABS spreads relative to benchmarks in the year ahead,” the analysts wrote.

Navient increases to meet demand

Red hot demand in the primary market also prompted Navient to increase the size of a Federal Family Education Loan Program (FFELP) transaction from $760.8m to $1bn. NAVSL 2018-1 entered the market last week and was launched on January 23.

However, the new deal size resulted in slight changes in the overall structure, including a change in the initial overcollateralization, prompting Moody’s and DBRS, which assigned preliminary ratings, to take another look at the deal.

“In the previous structure, the overcollateralization was expected to grow from an initial amount of 1.23% of the adjusted pool balance to a target overcollateralization level of 2.35% of the adjusted pool balance by trapping the excess spread. In the new structure, the initial overcollateralization will be at the target level of 2.35% of the adjusted pool balance,” said Moody’s in an emailed statement.

The rating agencies ultimately did not change the initial ratings, despite their updated outlook on the structure.

By Sasha Padbidri
23 Jan 2018