Whole-business spice: Consumer appetite for new debt kept US ABS running at a steady pace – at least until the autumn, when a fresh barrage of deals faltered. For helping the market regain momentum just when it needed it most, Barclays is IFR’s North America ABS House of the Year.
Underpinned by a strong economy and low unemployment, which recently fell to its lowest point in 50 years, optimism in the US securitisation market grew in 2018, leading to a tightening of spreads for much of the year despite high volumes.
Amid a flood of paper backed by auto loans and other forms of consumer credit, the lift-off in whole-business securitisations – mostly from big restaurant operators – was one of the main themes of the year.
Barclays has played a pivotal role in the growth of the sector over the past five years. During that period, some US$25bn of whole-business securities have been sold, according to S&P data.
This year, that leadership role continued. Barclays was the number one bookrunner in the whole-business arena, acting as left lead on five of the year’s 10 securitisations. And it not only led but upsized the biggest whole business deal of the year, during a difficult patch of volatility that saw other deals widen and even downsize.
In the middle of that volatility, Taco Bell was having “go, no-go” calls with its bankers about the timing of its planned US$1.2bn whole-business deal.
“At the end of October, we watched the broader equity markets close in the red,” said Jed Gold, assistant treasurer at Yum! Brands, the parent company of Taco Bell.
“The VIX had spiked from 12 to 25. And we were having discussions if this was the right market, or time to wait.”
Ultimately, Barclays’ advice was to forge ahead and that turned out to be the right call for Taco Bell.
Not only was the deal increased in size to US$1.45bn, but pricing also narrowed, putting its five-year class on par with the sector’s all-time low of 125bp over interpolated swaps, according Ben Fernandez, specialist in esoteric ABS at Barclays.
“All banks within our banking group are important,” Gold said. “But on this particular transaction it was really Barclays as the key partner as structurer.”
Barclays rivals the biggest US banks when it comes to capturing market share of flow business from repeat ABS issuers that have used the sector for funding for decades.
Its combined flow and esoteric trades placed Barclays second in the US ABS league tables over the IFR awards period, according to Refinitiv data.
“We marry the everyday colour that you get from doing all those deals, and constantly have dialogue with our clients on the flow side, to be able to really outperform on the esoteric side,” said Marty Attea, head of securitised products origination at Barclays.
Those insights were essential in September and October when markets got wobbly, but for seven out of nine weeks the number of individual transactions executed was in the double-digits.
That was partly due to a push from issuers looking to quickly turn loans into bonds before the year-end holidays.
Even before autumn, new issuance had been running high as US consumers’ embrace of debt continued.
Household debt rose another 1.6% in the third quarter of 2018 to set a US$13.51trn all-time record, according to data from the Federal Reserve Bank of New York.
And while consumers still appear better able to manage their debts than parts of corporate credit, cracks have been emerging in the ABS market.
When uncertainty set in and volatility kicked up, Barclays showed its mettle to win and execute more deals.
“Frankly, it’s great for business,” Attea said. “It is higher stress, but clients need us.”
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