Asset-Backed Bonds Come Back
By ANUSHA SHRIVASTAVA
A rush of new bonds is flooding the asset-backed securities market, including several types of deals that haven't been seen since the financial crisis.
.Adams Outdoor is bringing a bond backed by advertising revenue from billboards, the first such issue since markets collapsed in 2008. Banco Santander SA is offering the biggest post-crash bond backed by subprime auto loans, a $900 million deal. It raised the size from $675 million amid robust investor demand. South Carolina Student Loan Corp. also increased the size of its education-loan backed bonds.
The sales are a marked change from the trend so far this year, which has been dominated by prime auto-loan bond sales. The deals are finding demand from investors, many of whom are seeking a relatively safe investment that pays more than Treasury bonds. Other investments, like corporate bonds, have also staged rallies, making asset-backed securities more attractive.
Issuers are coming to market now in large part to finish their sales ahead of Thanksgiving week.
"Whatever deals are out there will be wrapped up today and tomorrow," said Jim Harrington, an asset-backed investor and former portfolio manager. "Next week will consist of maybe one or two days of trading."
Increased supply hasn't damped prices. Triple-A-rated three-year auto-sector bonds traded Thursday at yields of 25 basis points, or one-quarter percentage point over comparable Treasurys. A year ago, the difference was 55 basis point, Citigroup data show. Since prices move inversely to yields, the bonds rose in relative value.
Also, the Federal Reserve's recent decision to renew a bond-buying program to keep interest rates low took an "element of uncertainty out of the picture and set the market on sturdier ground," said Brian Wiele, head of the Americas securitization syndicate at Barclays Capital.
More than 60% of bonds sold this year have been auto-sector bonds, but the mix has become a little more varied this week. Adams Outdoor Advertising LP issued a $355 million bond backed by billboard revenue; Harley-Davidson Inc. sold a $600 million motorcycle loan-backed deal; Delta Air Lines Inc. offered a $474.1 million aircraft equipment-backed bond; and Gracechurch Funding, which securitizes credit-card debt of Barclaycard of the U.K., sold a $500 million bond. Nelnet Student Loan Trust also sold a $347.77 million bond.
South Carolina Student Loan Corp. raised the size of its bond to $920 million from $500 million.
Still, consumer loan-backed issuance this year will lag behind the $140 billion sold last year, when the Federal Reserve was supporting the market with low-cost loans to investors. Estimates put this year's total near $100 billion.
Citigroup said $91.56 billion has been sold this year through Thursday. Last year by this time, investors bought securities valued at $124.28 billion.
Next year may see issuance decline: Uncertainty over regulations on disclosure and accounting have damped issuer's forecasts. Industry participants said this may be one more reason issuers are hurrying to make deals this year.
Write to Anusha Shrivastava at firstname.lastname@example.org