US ABS issuance passed the $300bn mark for the year last week, making 2024 already the biggest ever for the asset class. There are few signs that deal making is done — even if this week's ABS East conference in Miami and US election may each bring short pauses.
A combination of strong demand making securitization attractive for a wide range of issuers, plus ever increasing consumer debt levels providing more loans to securitize, has driven the record issuance. Non housing-related consumer debt reached reached $4.9tr in the second quarter of 2024, according to the New York Fed.
Previously, the biggest ever year for US ABS was 2021, when there was $293.7bn of issuance, according to Finsight. As was the case three years ago, auto ABS has led — and in fact accounts for an even greater proportion of issuance, with $149.8bn so far, or 49.8% of the total. In 2021, auto ABS totaled, 124.7bn, or 42.5% of the total.
The various strands that together make up esoteric ABS are, combined, the second largest provider of volumes — with $97.9bn so far this year, 32.6% of all issuance. In 2021, there was $103.7bn of issuance, or 35.3% of the total.
Beyond expectations
Elen Callahan, the head of research at the Structured Finance Association, said that some of the volume might be from issuers pulling forward their issuance to accommodate for any election-induced volatility in late October and early November.
“It’s definitely been one of the strongest years on record and I think it surpassed most people’s expectations for issuance at the beginning of the year,” said Callahan. “Although people did expect strong issuance for the full year, they didn’t expect it to be this strong.
“There could also be something said for the pull-forward effect of the election so most issuers are trying to get in before the election because of most of the volatility that we usually see around that time.”
But the market is not done yet. Bank of America research is predicting a further $27bn of issuance this year, with around $15bn to come from the auto sector, an additional $2bn will come from credit cards, and $6bn coming from other commercial sectors such as equipment.
This is despite issuance having already surpassed volume forecasts.
“We’re looking for $329bn of issuance so we feel there’s a bit more to go,” said Theresa O’Neill, managing director and head of North American ABS strategy at BofA. “Already new issue has surprised us to the upside. This time last year we were looking more towards $270bn for 2024.”
Callahan at the SFA said that much of the issuance for the rest of the year would likely come from auto issuance, further boosted by the fact that electric vehicle leases are starting to enter the securitization market in full force. Tesla priced the $783m TESLA 2024-B on Oct. 9.
“Not only has [auto] inventory improved, but there’s been an increase in EV leasing activity,“ said Callahan. “EV leases make up about 47% of the financed EV market.
“A lot of that is coming to the securitization market as consumers have found that leasing is a good way to access an electric vehicle right now, and dealers are very ready to give that incentive.”
Mike Nowakowski, managing director and head of structured products at Conning, agreed that there had been pull-forward effect on issuance. However he believes that it has simply cleared the way for more deals, rather than clearing out the end-of-year calendar.
“There was this idea earlier in the year that supply was being brought forward to avoid election-related volatility,“ Nowakowski said. “But with the way executions are going in the primary market, there are no signs of a slowdown.“
Unsatiable demand
Indeed, issuance conditions have remained extraordinarily friendly even in the face of unprecedented demands.
“The market is more than friendly right now from an issuer’s perspective,“ said Nowakowski. “You can bring large size, get oversubscription, and bring your price guidance down.
“There’s nothing holding anybody back from issuing right now with the current macro-backdrop.“
Although he said it was “unclear“ how much funding companies still needed, he said that “all signs“ were pointing to continued demand even given uncertainty over the outcome of the US election.
“Congress will likely be divided so there’s not a huge probability of large, sweeping policy changes going forward, which means we could see more of the same in 2025,” said Nowakowski.
Moreover, although supply has been unprecedented, investors are still struggling to get their hands on paper in the amount they'd like.
“I think investors are starved for any kind of non-traditional paper right now, when its new issue allocation time,” said Nowakowski. “There’s a lot of angst among market participants because deals are regularly going six to eight times oversubscribed.
“If there’s a subsector in ABS that we really like, is a bit off-the-run, and we can capture yield and spread versus competing asset classes, but there isn’t enough to go around to fill interests, it can be frustrating.
“It’s wild to think that although we’ve had record new issuance, people still can’t get exposure via new issue because there’s a ridiculous amount of capital chasing these deals.”
O’Neill added that these heavy levels of issuance indicate a strong tone in the ABS market.
“We believe this year’s robust volumes likely reflect strong market tone for ABS, emerging and/or less active sectors ramping up, higher consumer debt levels, concerns regarding the direction of rates and spreads, front-loading volume before the presidential and congressional elections, and — earlier in the year — carry over volume from the prior year,” said the BofA strategist