ABS investors snap up blast of summer supply

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By Joy Wiltermuth

NEW YORK, July 19 (IFR) - Investors were undaunted by the US$15bn deluge of new asset-backed bond supply on tap for this week, which is expected to mark a record summer week for issuance.

Only one other week - July 15, 2016 - in the past four summers saw ABS supply north of US$10bn between June and late August, according to IFR data.

"It's been a pretty busy week," said Ryan Biernesser, ABS/CMBS sector specialist at Semper Capital Management.

"Overall, the supply seems pretty well absorbed."

The summer blast of ABS saw six names upsize, and most deals clear within their pricing targets.

American Express, CarMax, Ford, Mercedes-Benz, OneMain and Santander each priced bigger bond deals than initially expected.

That gave a boost to the weekly volumes and topped initial supply estimates of US$10bn-US$12bn.

And while the old adage "sell in May and go away" has not been a major theme in ABS for few years, the primary market is still expected to slow soon to a more leisurely pace.

"If you were looking to see what opportunities there might be over the next few months, this would have been the week to do it," said one syndicate head.

"You have got four good financing weeks left of summer. After that, it's a bit of a crapshoot."


But even with strong reception for the week's deals, spreads on top Triple A classes have barely budged.

Student lender Navient priced its 1.31-year Triple A class at EDSF plus 30bp, or 3bp wide of similar bonds it sold in February, according to IFR data.

Some riskier ABS Triple Bs, however, from the week's deals saw high demand and tighter clearing levels.

CarMax priced the Triple B portion of its US$1.43bn near-prime auto loan securitization at 105bp over interpolated swaps.

The car seller sold similar notes in April at IS+120bp, after setting a post-crisis low of IS+100bp in January for CarMax Triple Bs.

"It seems to me that non-benchmark names, in general, and sub tranches are doing better," a second portfolio manger told IFR.

"You've got a flattening yield curve and a search for yield."


While investors are getting paid less lately to take up riskier bonds, the securitization market may just end up being less risky than other parts of US credit.

"In recent cycles, households, and especially the housing sector, have been the primary culprits of credit excesses," Vincent Deluard, global macro strategist at broker-dealer INTL FCStone Financial, wrote this week.

"I doubt history will repeat itself, at least in the short-term."

He pointed to excess corporate leverage as a bigger immediate worry than consumer credit.

Still, on the fringe, there have been recent signs of weakness.

S&P this week dropped it ratings by several notches on the riskiest C class of Honor Finance's only subprime auto securitization deeper into junk territory. The credit firm also said the class could take a rare write-down of about 2%.

This article appears in: Stocks , World Markets , Politics

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