Leads Bank of America Merrill Lynch, Deutsche Bank, RBC and Wells Fargo priced the $1.4bn no-grow VZOT 2016-2 on November 16, with the $1.2bn ‘A’ notes pricing at 35bp over Swaps. The $100m ‘B’ notes and the $100m ‘C’ notes were priced at 70bp and 90bp over Interpolated Swaps, respectively. Verizon issued the market's first ever mobile phone ABS in July.
A banker on the deal told GlobalCapital on Thursday that the pricing performance of this deal could highlight the attractiveness of tapping the ABS market to other mobile phone carriers.
“The deal priced 20bp inside of the senior bonds compared to first deal. That should get a lot of attention from issuers,” the banker said, noting the increasing attractiveness of ABS and the possibility that more US carriers tap the market in the future. He added that the majority of buyers who invested in the bonds from Verizon’s debut deal in July were also present on this deal, with new investors accounting for approximately a quarter of the order book.
The deal is backed by payments on wireless devices made by customers over the life of their contract with the carrier. Verizon customers backing the deal have an average FICO score of 709, and a weighted average remaining term of 24 months on their contracts.
Deal watchers noted that the sector has potential to grow into a multi-billion dollar asset class, given the payment priority, stability of the collateral and the massive pools of assets carriers have available to bundle in ABS.
“In terms of payment priority, it’s pretty high up compared to other types of debt,” said an ABS investor. “If you don’t pay, you get cut off and that’s quite effective in ensuring stable performance."
Although mobile phone securitizations are still new in the US, the sector is already established among telecommunications companies in Japan. A first-ever mobile phone ABS also hit the European market this week, with the pricing of a £125m private securitization from Virgin Media Mobile.