ABS braces for more auto deals after strong start to year

5 min read
Natalie Harrison

The asset-backed bond market is braced for a slew of new issues next week, with deal flow expected to be dominated by auto issuers including BMW and Mercedes.

Just two issuers sold deals this week - GM Financial and Consumer Portfolio Services - and both auto trades were met with strong demand from investors. One banker on the GM deal said the deal was over-subscribed across the capital stack.

“Based on the deals we’ve seen this week, the market feels strong,” said the banker.

“But the question is whether this will last. Towards the back end of last year, you started to see books not building quite as quickly and a bit of fatigue.”

The deal from GM was its first public rated prime auto transaction from its current shelf. That helped attract more investors than on its three private deals last year, while being a first mover in the primary this year also helped drive demand.

Banks selling the roughly US$1.227bn trade from GM started out conservatively on pricing to gauge appetite.

But spreads were pulled in by up to 15bp through the bookbuild. It priced roughly in line with the last prime auto retail deals from Honda and Nissan late last year, and inside its own last prime deal in October.

The biggest tightening though was seen on the smallest and lower rated tranches. The 3.58-year Class B, rated Aa3/AA by Moody’s and Fitch, priced at 30bp over interpolated swaps versus guidance of 35-40bp and whispers of 45bp area.

The 3.58-year Class C, rated A1/A, priced at 50bp over interpolated swaps versus guidance of 55-60bp and whispers of 65bp area.


It was a similar story for the CPS sub-prime deal, with the tranches on that trade four to six times covered, according to a banker on the trade.

The largest US$88.466m Triple A rated 0.76-year tranche priced at EDSF plus 27bp versus guidance of 30bp area and whispers of low-to-mid 30s.

The 3.49-year US$23.133m Class D, rated BBB by both S&P and DBRS, priced at 140bp over interpolated swaps, while the 4.14-year US$20.036m Class E, rated BB-/BB, priced at 290bp over interpolated swaps.

The comparable tranches on its last deal in October came at 185bp and 340bp over.

“Subs are very well bid,” said the banker. “There is a risk-on feel and there is a lot of enquiry about residuals.”

Home furnishing retailer Conn’s sold a residual tranche - a US$78.64m 1.89-year Class C, rated B- by both Fitch and Kroll - at 400bp over EDSF in December.

“That got people’s attention,” said the banker. “It was very tight, and issuers are aware of the bid.”


At least six auto deals are now already pre-marketing: prime deals are on offer from BMW, CarMax and Mercedes, sub-prime issues are circulating for Santander and Westlake and another trade from car rental firm Hertz is out there.

Mercedes could potentially upsize its Triple A rated deal to more than US$2bn from around US$1.286bn, according to deal documents seen by IFR, while Westlake is offering tranches with ratings ranging from Triple A to Single B.

BMW is selling its first prime retail deal since 2016, a US$1.25bn issue. It funded through its lease platform last year.

Whispers on that trade are tight: in the single digits for the 0.98-year Class A2, 11-13bp over interpolated swaps for the 2.22-year A3 Class and 17-18bp over interpolated swaps for the 3.41-year A4.

But deals from other sectors are also expected.

Personal finance company Social Finance – one of the top ten issuers of ABS last year – has also got the ball rolling with a filing for a private student loan ABS. Online lender Marlette has also filed for a potential deal.

Consumer loan volume and ABS issuance reached record levels in 2017, according to rating agency Kroll. Total consumer loan marketplace loan ABS issuance topped US$7.8bn in 2017, up from US$4.6bn in 2016 for a year-over-year increase of 71%, Kroll said.

Spreads in the asset class tightened as investors got more comfortable with transaction structures, asset performance, underwriting and operations, the rating agency said.

Kroll expects 2018 to be another big year for the asset class as loan volumes increase and the regulatory environment improves.

GM Financial logo