Banc of America Securities is preparing a first-of-its kind synthetic securitization referenced to auto loans, according to a potential investor scouted out by the firm. The bonds are expected to be rated single-A and below and would be referenced to a pool of auto loans retained by Bank of America; the sale is intended to reduce the bank's exposure to the auto loans and would be the first offering of its kind. To date, only mortgage risk has been sold synthetically in the asset-backed market.
BofA recently held a non-deal roadshow to discuss the concept with potential investors and is believed to be close to announcing the deal, which would be in the hundreds of millions of dollars and be sold as a floating-rate Rule 144a. The deal would structure bonds that mimic the performance of the auto loans, which BofA would retain.
The potential size of the classes is attractive to at least one investor, given the scarcity of subordinate auto bonds. Major auto lenders have been increasingly selling blocks of loans directly to banks and avoiding the securitization market. Meanwhile, sub-prime issuers tend to sell wrapped deals and prime originators such as Ford Motor Credit, which have sold subordinates in the past, do not do so on a regular basis. "Because of the way they will be issued, they will be subordinates of a decent size. And you don't see auto subs very often," said the investor, explaining the attractiveness. "There isn't much auto paper at all," added another investor. He is unaware of the plans but said he might be interested in participating.
Adam Garfinkle, head of ABS origination at BofA, did not return a call, but one of his colleagues stressed that no firm decision on a deal has been made.