(Bloomberg) -- Issuance of asset-backed securities is expected to reach a post-Great Financial Crisis record in 2024, driven by sectors such as prime auto loans and digital infrastructure, according to a note this week from Barclays Plc.
Total sales of new asset-backed securities are projected to reach $280 billion next year, edging out the $277 billion forecast for this year, strategist Powell Eddins wrote in an Oct. 31 note.
Prime auto loan ABS is expected to rise next year, continuing a trend from 2023. Issuance of prime auto loan ABS is already $66.1 billion this year, 27% higher than the full-year total in 2022, according to Barclays data when the note was published. Next year's total is projected to be still higher, Barclays said.
At a time when deposits have declined and banks face funding pressure, lenders are seeking alternative financing sources, with some turning to securitization of prime auto loans in particular, Eddins notes. Earlier this year, Bayview Asset Management securitized at least $8 billion in prime auto loans that it acquired from US Bank, and Citizens Financial Group Inc. sought to securitize a large part of its $11.5 billion auto loan book.
"Auto loans from high-quality borrowers account for a significant portion of some banks' balance sheets, but banks are finding that they also carry a high capital charge relative to their expected returns," Eddins said in emailed comments. "All else equal, that means prime auto loan ABS issuance will continue to be elevated as auto lending risk shifts to non-banks."
Eddins pointed to rising auto ABS issuance by credit unions, as well as the auto ABS deals by Bayview, as examples of the shift in overall auto lending risk to non-banks.
To be sure, if issuance reaches a new record next year, it would likely surpass this year's volumes by only a small margin, according to Eddins' projections. And Bloomberg News, using a different methodology for ABS, showed that 2021 ABS issuance was a record $312.6 billion.
Digital infrastructure ABS — notably, bonds backed by fiber infrastructure and data centers — are also expected to contribute to higher issuance. Barclays is expecting $14.5 billion in these ABS, including $7bn in data center, $5bn in fiber or small cell, and $2.5bn in wireless tower.
"Demand for data transmission, both on an institutional and consumer level, continues to be strong, and there seems to be demand for longer duration ABS deals from insurance investors, which should facilitate continued robust issuance in data center ABS in 2024," Eddins wrote in the note.
Relative Value
The top of the capital stack across consumer ABS assets looks very cheap versus comparable credits, according to a note by analysts at JPMorgan Chase & Co. dated Nov. 3.
- Within ABS, marketplace lending ABS also offers significant spread concessions compared to plain vanilla ABS asset classes
- For example, "AAA 1-year MPL ABS spreads are currently at Treasury(I) + 150bps and offer 60bps-80bps pickup compared to credit card and auto loans"
- It's true that spread outperformance from here through year end "may be difficult given declining investor confidence amidst geopolitical tensions and looming macro uncertainty coupled with ABS technicals, and broader liquidity chase"
- On the other hand, "6.5%-7.5% all-in yields, up in quality collateral on recent vintages, plus higher rating agency base case loss expectations...create an excellent value proposition for senior short duration MPL ABS with the front-end rates relatively more anchored by the Fed"
What's Next
Global Lending Services, GM Financial, Lithia & Driveway, PNM Energy Transition Bond Company I, STACK Infrastructure, Stonebriar Commercial Finance and Toyota Motor Credit Corporation were added to next week's ABS calendar. Read more in the daily Structured Pipeline.
