Bubbling up
The credit market faced a host of challenges in 2023, meaning issuers required fresh approaches to meet their funding needs. For its broad reach and deep insight to help clients develop new asset classes and bring back old programmes, Bank of America is IFR’s North America Structured Finance House of the Year.
Wielding its considerable market clout and hefty balance sheet, Bank of America showcased its ability to clinch fundings for a range of clients – whether private credit firms, regional banks, credit unions or government-sponsored enterprises.
“We continue to be one of the few banks I consider to be full-service across the entire securitised products business,” said Matthew McQueen, BofA’s global head of mortgages and securitised products. “That means we have a highly relevant footprint in terms of origination, lending, underwriting, and secondary trading.”
This one-stop shop model helped put the North Carolina-based bank on top of LSEG’s asset-backed league table for the first time since 2012. The bank posted solid eighth and seventh placements in LSEG’s residential and commercial mortgage league tables in a year when issuance in both sectors plunged by more than 50% due to high interest rates.
BofA was also one of the top underwriters in US liquid “flow” securitisations that encompass auto loans, credit card, equipment financing and student debt.
In addition to ensuring established issuers such as General Motors and Nissan enjoyed uninterrupted market access, McQueen’s team was involved with credit unions – a small but growing presence in the structured finance market. It was the lead-left for four auto issues from these financial cooperatives, raising US$1.1bn.
The bank’s ABS and banking teams also joined forces to acquire US$3bn of private student loans from Sallie Mae and securitised them.
“That is not a transaction that a majority of our peers can do and that highlights the overall full service of the franchise,” McQueen said.
Transport of delight
While consumer flow issuance comprised the bulk of BofA’s ABS volume in 2023, its bankers enlivened the commercial transportation sector which has printed few deals in the wake of the spike in borrowing costs. It floated a US$293m container lease securitisation for Seacube in June and in October landed a US$410m plane engine issue for Willis – the first aviation ABS of the year.
In the burgeoning area of digital infrastructure, where there is growing demand for capital to fund high-speed fibre networks and more energy efficient data centres, BofA participated as a joint lead on three fibre-backed bonds – for Allo, Metronet and Hotwire – which raised a combined US$1.7bn.
The combination of elevated home prices and mortgage rates meant lenders experienced a sizeable drop in new business for a second straight year in 2023. In response, they turned their attention to existing home borrowers who want to tap into their home equity. But many non-bank institutions have limited experience securitising second-lien loans and home equity lines of credits.
BofA felt this was an opening for them to assist clients like Rocket Mortgage. Its bankers helped Rocket to develop a platform to securitise its home equity products. They also located an investor to own the subordinate portion of Rocket’s inaugural US$239m home equity deal.
“We work with the trading team to anticipate what investors want and tailor the product to their liking,” BofA’s head of mortgage finance Mark Michael said. “It is consistent with our approach of helping our clients to develop markets.”
Another innovation the bank helped develop was a structural change to Freddie Mac’s single-family credit risk transfer programme. Before the change, if Freddie reckons a part of a CRT deal is no longer economic as a default hedge, it tenders the entire deal.
The introduction of an A-1 class in Freddie’s final CRT issue of 2023, means the government-sponsored enterprise can call the note within three years if the underlying loan pool performs as expected. The A-1 note would achieve the same objective of a tender and Freddie does not need to pay a premium on the note at a tender.
BofA's CRT expertise extended into the CMBS space where it reintroduced Fannie Mae’s multifamily credit risk transfer programme which printed its first deal since 2020.
“Folks had forgotten what it was,” said Leland Bunch, BofA’s head of CMBS capital markets. “The market is requesting to see paper like this. Part of our job is to bridge that.”
Reflecting on what his team was able to achieve amid various market challenges, McQueen said 2023 is “another year of strong accomplishments".
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