North America ABS House: Citigroup

IFR Awards 2019
5 min read
David Bell

Going long:

While maintaining a top of the table market share, one bank was able to bring structural developments to the ABS programmes of core issuers that deepened their market access and satisfied investor demand for longer-dated paper. For these reasons, Citigroup is IFR’s North America ABS House of the Year.

Citigroup has been a mainstay at the top of the ABS league tables in recent years, putting its deep roster of client relationships to work to ensure a heavy share of mandates.

2019 was no different in that regard, with increases in asset classes such as prime auto loans, equipment ABS and consumer loans all playing into the bank’s strengths.

But against the backdrop of a tremendous rally in unsecured corporate bond spreads, the bank had to offer some structural developments to keep key issuers motivated in the ABS market.

Citigroup was able to ensure the market remained a key funding tool for its clients by structuring transactions that matched borrower demand for longer-dated financing with investor appetite for higher yielding paper.

Last December, with credit markets in turmoil, the bank arranged a US$700m auto floorplan trade for Ford Credit that represented the auto lender’s first 10-year transaction, driven by anchor investors looking for long-duration paper.

In June, Citigroup structured a US$1.5bn deal for Toyota Motor Credit that featured a revolving period for the first time in the car finance company’s ABS history. This built on technology the bank had developed for Ford several years ago.

The deal helped Toyota finance what has been a growing and increasingly concerning corner of auto finance: the proliferation of long-dated loans with tenors of up to 84 months.

These have been increasing in popularity as consumers look to buy larger, more expensive vehicles while keeping monthly payments down. But the nature of these longer-dated loans exposes investors to greater default risk and potentially higher losses.

The new revolving structure allows up to 15% of the loans included to have 84-month terms. It was the first time these loans had been brought to a public term securitisation structure, according to an S&P report.

The new revolving structure enables Toyota to finance these loans without affecting the consistency of its traditional amortising ABS product.

“Regional banks and captive finance companies are generally issuing loans beyond 72 months, but prior to this date, captive fincos had generally not been including any material concentration of greater than 72-month loans in their public securitisations,” said Casey Furillo, director, global securitised products origination at Citigroup.

In addition, in July Citigroup structured a private US$750m 144A offering for OneMain Financial that featured a seven-year revolving period, the longest tenor ABS bond that the consumer lender had executed at that point.

“The real benefit to those revolving structures is not only delivering longer-tenored financing to our issuing clients, but we also have a huge investor base that really doesn’t have a lot of other opportunities to buy longer-dated securities in the asset-backed space,” said John Dahl, head of global securitised products at Citigroup.

“It tends to be a two- or three-year market. So if we can produce a five- or seven-year term, that is hugely advantageous to the insurance and money managers that tend to participate in our space.”

Citigroup also maintained a leading role in arranging aircraft lease securitisations, a market that has seen growth accelerate this year with US$8.8bn sold through the end of October, surpassing the US$7.5bn sold during 2018.

Of the 19 deals sold in the awards period, Citigroup had a lead bookrunner role in nine. The bank has worked to bring investors over from its auto deals into the aviation space in a push to make the aircraft sector more mainstream.

The development of tradable equity notes that largely replace the need for an anchor investor has helped broaden the investor base and increased the attractiveness of ABS financing, according to Thomas Bliemel, managing director in global structured debt.

“It’s brought a lot of new investors into the space,” he said. “Roughly 60% of the demand we’ve seen for equity in the deals we marketed was from investors that were new to aviation.”

This has all helped the bank deliver on its core mandate, according to Dahl.

“Citi is meant to support long-standing relationships, and we believe that is one of the reasons our securitisation franchise has been year-in-year out in the top one-two players in the market,” he said.

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