Sunday, 16 December 2018

More debut deals prepped for ABS market

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Bankers are readying at least two debut US asset-backed bonds for next week, looking for find investors seeking higher yielding paper and new names to buy.

De Lage Landen Finance (DLL), a unit of Netherlands-based Rabobank, is pre-marketing an inaugural agriculture equipment deal, while Wings Capital Partners is looking to make its debut with an aircraft trade.

Both should be well received, though they will have to compete with a host of other new issues preparing to launch as bankers look to get deals over the line before Thanksgiving.

Debut offerings have had a mixed response of late.

A consumer loan deal for Caribbean Financial Group - which began pre-marketing in September - finally priced Thursday after some changes were made to the deal’s terms. nL2N1MO01F

The relative conservative structures of these two latest debutants, however, should be a big positive, bankers said.

DDL’s US$501.5m issue consists of four tranches ranging in maturities from three months to 3.5 years.

“It’s been a while since we have seen a debut issue in the agricultural sector, especially one with such a strong parent,” said one banking source with knowledge of the trade.

Rabobank is rated Aa2 by Moody’s and A+ by S&P.



Even so, as a debut issuer DLL will likely have to offer a premium to similar bonds. The most obvious comparables are likely to be outstanding deals from CNH Equipment and John Deere, the banker said.

They last came to the ABS market in July. As part of those transactions, John Deere sold a US$250m Triple A rated 2.38-year bond at iSwaps plus 15bp, while CNH sold a US$221.5m 2.63-year tranche at iSwaps plus 22bp.

Whispers on the comparable US$155m 2.35-year tranche from DLL are heard slightly higher at iSwaps plus 35bp, one investor told IFR.

Unlike other US agricultural equipment securitizations, the DLL transaction includes lease contracts and has exposure to residual value risk, Moody’s said. Other equipment ABS deals are purely backed by loans, the banker said.

The rating agency noted several positives on the trade, including the experience of DLL, which has originated loans and leases for more than 20 years.

“It will probably come cheaper to other equipment deals and the credit enhancement is good. It’s pretty well structured,” the investor said. The initial over-collateralization is 10.3%.

The deal, expected to price next week, will give DDL diversifcation of funding with a foot in the ABS market.

Credit Suisse structured the deal and is leading the transaction alongside JP Morgan.



Pre-marketing is also under way for a US$480.067m aircraft deal called WAVE 2017-1 for Wings Capital Partners. Goldman Sachs structured that trade and is a bookrunner with Credit Agricole and Wells Fargo.

Proceeds will be used to acquire 19 aircraft on lease to 17 lessees in 14 countries, according to a pre-sale report from Kroll. The majority of the aircraft are narrow-body models that tend to be more liquid, Kroll said.

The deal follows another debut aircraft issue in the ABS sector for Aergo Capital which priced this week.

The Aergo deal, led by Goldman Sachs, took a while to work through the market, partly because of the countries in the collateral pool, which included Pakistan.

“It’s hard for us to understand the risk involved in those kinds of countries,” said the investor.

But he said he was more comfortable with the risk in the Wings deal. Indonesia, Colombia and Ireland are the three largest country concentrations by value, Kroll said.

After the busiest month for ABS supply since the financial crisis, with US$30.629bn priced in October, bankers are now preparing another deal spree.

A surge of new issues is expected to be officially announced next week, including from the auto, student loan and consumer loan sectors.


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