Tuesday, 17 July 2018

MIAMI VICE-Rundown from ABS East 2017

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Hurricane Irma left few signs of disruption at the ABS East conference in Miami as bankers, investors and issuers filled conference halls on Monday and began one-on-one meetings behind the scenes at the Fontainebleau hotel.

Some 3,125 people had turned up by Monday afternoon, according to conference organizer Information Management Network, and just a couple of issuers - including student loan company Nelnet - were heard to have pulled out.



Monday’s proceedings kicked off with a discussion on regulation.

Richard Johns, executive director at SFIG, said most industry bodies, including LSTA and SIFMA were in dialogue with the US Treasury to get across the industry perspective on current regulations.

But changes will take time, will need to strike the right balance and will only come after a number of regulatory positions are filled, panelists said.

Greater clarification on what qualifies as a liquid transaction, for example, would help the structured finance market without specifically impacting transactions in the way that changes to risk retention rules would.

“That’s where the focus really needs to be,” said Johns.

“We need to see something that helps both sides of the market - both the issuer and investor.”

But there was heavy criticism aimed at the CFPB.

Ryan Schoen, senior financial services analyst at Washington Analysis, said the CFPB “was the single largest political football that came out of Dodd-Frank.”

Panelists complained that the CFPB was regulating by enforcement, and that even introducing a comment period to allow for market feedback would be a move in the right direction.

“The CFPB needs processes more in line with other agencies,” said Vincent Fiorillo, head of global relationship management at Doubleline Group.

The other hot topic was Janet Yellen, and whether she would remain as Chair of the Federal Reserve.

Andy Barr, Republican congressman for Kentucky, said: “It’s not a foregone conclusion that Janet Yellen will not remain as Fed Chair.” But her chances to remain are “below 50%” because her views are “so fundamentally at odds with Trump.”



A panel on auto ABS discussed possible rising delinquencies in the aftermath of Hurricanes Harvey and Irma.

But the general consensus was that losses would be limited and that most originators would be willing to work with borrowers to modify loans where needed.

Data mining from originators also showed that the vast majority of borrowers impacted by the hurricanes - around 80% according to one investor - had comprehensive insurance to cover damage to vehicles.

That suggests losses will be limited in affected regions.

“In speaking with a lot of issuers, many have set processes to work with borrowers,” said Jennifer Thomas, an ABS analyst at Loomis Sayles.

The removal of auto loans to consumers in areas affected by the hurricane in Texas also helped recent primary deals get off the ground last week.

“That helped give peace of mind,” said Amy Sze, executive director at JP Morgan Securities.

“Deals have been well oversubscribed and technicals are strong. That’s good for issuers, but not so good for investors.”

Panelists said there was little evidence of a potential “Carmageddon” down the line in light of negative headlines on delinquencies - particularly in subprime - and worries about falling used car prices.

That’s partly because of how ABS deals are structured and the level of credit enhancement in transactions.

“It didn’t happen during the credit crisis, and it would really take a Great Depression,” said Sze.

“Your bonds are pretty good.”



Investors really want to hear from consumer lender SoFi.

SoFi has been in the spotlight for all the wrong reasons of late following the resignation of its CEO Michael Cagney last week following a sex harassment lawsuit, and investors want to know what the company is doing to fix any issues.

“Their schedule is full and we heard they brought in a couple of extras,” one investor said.

“Their deal last week was well oversubscribed, but some people dropped out, including us. I saw them at a dinner last night and they looked a little beaten up.”

The investor is sticking to buying senior tranches in consumer lending deals.

“The management of these companies are bringing in more experience - from the people they were trying to disrupt like the auto industry - to improve compliance,” said the investor.

“They are also a bit more humble. But one thing we worry about is that the model still hasn’t been tested in a recession.”

John McElravey, head of consumer ABS research at Wells Fargo Securities, said limited performance history was one of the biggest worries that the buyside has.

“When we talk to investors, they seem to prefer brick and mortar lenders. People ask about how they can frame expectations about what losses will look like” said McElravey.

Other unsecured debt, like timeshare ABS may offer some guidelines, he said.

SoFi will be on a late afternoon panel Monday with other online lenders including Prosper Marketplace.


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