High flying securitization market draws record crowd to ABS East

Doors opened at the Fontainebleau Miami Beach on Sunday for the annual ABS East conference, kicking off what is expected to be the biggest year for the event to date, as deal making takes center stage and sponsors get ready to pitch a wave of issuance to yield hungry investors.

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ABS East, celebrating its 25th year in 2019, is expected to draw around 5,200 attendees, a jump of about 400 compared to last year, according to conference organizer IMN. The talk leading up to the conference centered squarely on the expectation that deal flow in the last quarter of the year is set to accelerate as renewed central bank easing draws more and more issuers to market.

“The market is expanding. I would say that the part everyone will be focused on will be CLOs, which are always a hot topic, but also anything esoteric, any product that offers investors yield,” a portfolio manager told GlobalCapital in the week leading up to the event. “I think the investment bank and broker dealer community is aware of that and they want to get in front of [attendees] that are going to be bringing that supply.”

Typical for the week leading up to a big industry conference, issuers flooded the pipeline with deals before touching down in Miami, pricing 12 transactions in just the first three days of last week to bring year to date volume of ABS beyond what was seen in the same period of 2018. Esoteric deals have been the highlight as another round of rate cuts pushes investors into the far corners of the market looking for yield. A deal from disaster clean up franchise Servpro and a small ticket equipment deal from Hewlett Packard were heavily oversubscribed by investors.

“I attribute the record-breaking attendance to a robust issuance pipeline, and strong investor demand for quality paper,” said IMN managing director Jade Friedensohn. “Thanks to the partnership with the buy side group FIIN, and the support of the investment banking community, ABS East is the place where issuers know they can go to get deals done.”

On top of the usual deal making and networking, attendees can expect heavy discussion of a topic that is always top of mind at the conference but has seen little forward momentum until this year – the reform of the government sponsored enterprises, and the end of Fannie Mae and Freddie Mac’s conservatorship.

The Trump administration released its reform package from the Treasury this month, and a Senate Banking Committee hearing the following week shed more light on the plan to shrink the footprint of Fannie and Freddie. Attendees involved in the private label MBS space will be listening carefully on what that means for their businesses and how private lenders plan to grow the market beyond the mix of jumbo, non-prime and non-QM securitizations that have mostly been seen to date. Panels on the end of the QM-patch, GSE reform proposals and the state of private label mortgage bond issuance will take place over the three days.

The head scratcher for many at the event this year will be the phase out of Libor as a reference rate at the end of 2021. The week leading up to ABS East saw chaos in the repo markets that drove a jump in Sofr – the replacement rate for dollar Libor – from 2.25% to 5.25% overnight. That kind of volatility led to a wave of commentary suggesting that Sofr is not ready to stand in as the replacement benchmark, and that there is still a great deal of work to be done to replace an unsecured term rate with a secured overnight rate. The Loan Syndications and Trading Association will host a number of panels throughout the conference briefing market players on Sofr and how to deal with Libor replacement language in deal documentation.

Keynotes lined up for the conference this year include a Q&A session on Monday morning with Mohamed El-Erian, chief economic advisor at Allianz. Attendees can submit questions live or ahead of the talk via Slido.com. Also on Monday, Mark Sobel, US chairman of the Official Monetary and Financial Institutions Forum, will give a talk on US-China trade wars and their effect on the macro environment.

The 25th anniversary of the conference will also see the launch of IMN’s Women in Thought Leadership initiative. A breakfast on Tuesday morning will kick off the forum, followed by a panel of women in securitization moderated by Amanda Pullinger, CEO of 100 Women in Finance.