Consumer Loan-Backed Bond Issuance At A Trickle
October 14 2010 - 02:56PM
Dow Jones News
A smattering of small-sized bonds has emerged on the consumer
asset-backed market this week and the flow is likely to remain
muted for the rest of the year.
Wyndham Worldwide Corp. (WYN) and TAL International Group (TAL)
are among the issuers this week. Wyndham's $250 million bond is
backed by timeshare receivables and TAL's $203 million bond is
backed by freight-container leases.
On Wednesday, the U.S. federal regulator for credit unions, the
National Credit Union Administration, announced it is selling
residential mortgage-backed securities valued at $3.847 billion.
These bonds are bundled loans from failed institutions the NCUA has
taken over.
Industry participants expect about $100 billion in new consumer
loan-backed bond sales this year. These are bonds backed by loans
for cars, for education and credit card debt. Last year, $140
billion in such bonds were sold. So far this year, a little over
$80 billion have priced, with more than half sold in the auto
sector. The recent slowdown in issuance began right before ABS
East, a securitization conference held last week in Miami.
"The pace of supply has slowed recently, but we are starting to
see a pick-up in deal roadshows and many issuers used the recent
ABS East conference as an opportunity to market deals," said Brian
Wiele, head of Americas securitization syndicate at Barclays
Capital in New York. "We would expect issuance volume to accelerate
in the near term."
That said, it is unclear how much issuance will rebound, given
the weak economy and changes in accounting and other regulatory
rules. Participants at ABS East repeatedly referred to their fears
over these changes, pointing out that the new rules will increase
the cost of securitization, making this funding path less
attractive. Regulators, for their part, say more disclosure is
necessary to increase the comfort level of investors when they buy
these bonds.
"Our industry is not going to see big issuance the way it used
to," said one fixed income portfolio manager who declined to be
named. Auto-sector issuers all seem to be "content" issuing one
bond per quarter, he added, noting these are often "one loan, one
lease and one floorplan" backed securities.
For a lot of credit card issuers, there are other cheaper ways
of financing, like deposits, he said.
Consumers have cut back on spending as unemployment levels
remain stubbornly high. With fewer loans, there is less raw
material to create these asset-backed bonds.
"No one is carrying around 10 credit cards anymore," said Jim
Harrington, an ABS investor in New York. "People have lowered their
expectations."
The issuance calendar is also slowing down as the end of the
year is approaching, Harrington pointed out.
"There will still be a couple of deals in what's left of October
and a few in November and then people will have discussions about
how things look and where we go from here," he said. "December
could be a quiet month."
-By Anusha Shrivastava, Dow Jones Newswires; 212-416-2227;
anusha.shrivastava@dowjones.com
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