ABS gears up for robust post-Vegas pipeline
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ABS gears up for robust post-Vegas pipeline

Festive fireworks on Las Vegas Strip

The tone was positive among market participants during SFA conference

As over 8,000 securitization market participants return to their desks after four busy days at SF Vegas, most are expecting busy weeks ahead for the new issue market with many potential deals on the way.

“We generally see more issuance after the conference, and we expect the same this time around,” one ABS banker said, noting that volumes in the first two months of the year had been slightly below his expectations — despite showing a strong improvement on a torrid final quarter to 2022. Given the still muted activity so far, issuers preparing deals should find plentiful investor appetite.

“There is still more demand than supply in the market,” one banker told GlobalCapital.

Several sources told GlobalCapital that they are expecting robust ABS issuance in the upcoming weeks follow the positive tone of discussions at the conference.

Since the SF Vegas began on Sunday, at least six 15-Gs for new deals have already been filed at the SEC: a consumer lending ABS deal by LendingPoint; a private student loan ABS deal from Sallie Mae; a CMBS deal by Goldman Sachs; two RMBS deals by Redwood and Chimera; and an esoteric ABS deal by American Tower.

Spreads have tightened significantly since the second half of last year, and although macroeconomic uncertainty makes it hard for market participants to have strong conviction on whether this trend will continue, there are some optimists out there.

“Momentum around spread tightening might continue,” another ABS banker said. “The market has priced in what they believe the [US interest] rates are going to be, which gives investors more incentive to buy.”

Investors are keen to participate in the market more this quarter, having largely pulled back from the market in the fourth quarter of 2022.

The same banker added that issuers were “looking for deals to do” to take advantage of this window of opportunity, though some esoteric sectors will likely wait a few weeks to catch up as deals from more unusual borrowers tend to have a longer structuring and execution period.

One ABS investor agreed with the bankers, saying that the tone was positive during the conference and “most seemed fairly constructive”. Another buyside source said that he thought the conference attendees were “too optimistic” about the general macroeconomic outlook, which he says is being undermined by the struggles of consumers. However, he still expected a somewhat robust market tone following the conference.

This does not mean issuance is going to soar past the levels of 2022, which started strongly before ending poorly as the rates volatility caught up with the securitized products market.

During one panel discussion at the conference, attendees in the room were polled about their expectations for auto ABS volumes. Some 80% of the attendees said they either expected a "slight" decrease or a slight increase, and both options received similar numbers of votes.

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