Weekly Wrap: KBRA places aviation ABS notes under downgrade watch

Financial industry groups including the Mortgage Bankers Association, SIFMA, the Structured Finance Association and the Loan Syndications & Trading Association were among those this week urging federal legislation to address how "tough legacy" contracts tied to the outgoing Libor benchmark rate should prepare for its eventual demise.

In a letter to the U.S. House Financial Services Committee on Thursday, the four were among 18 trade orginations which proposed that Congress consider a federal measure that would resolve how financial contracts extending beyond June 2023 should replace Libor when the benchmark is slated to end across all currencies by then.

In a statement from SIFMA, the group noted that "trillions of dollars of outstanding contracts, securities, and loans that use LIBOR for their interest rates but do not have appropriate contractual language to address a permanent cessation of US dollar LIBOR."

"Existing interest-rate fallback provisions may not address the issue at all, may result in adjustable-rate contracts becoming fixed-rate contracts based on the last known LIBOR, or may defer to a party’s judgement to replace LIBOR with a comparable interest rate index," the letter stated. "In any case, it is likely that ineffective or ambiguous fallback provisions will result in uncertainty, litigation, and harm to consumers, businesses, and investors."

The New York state legislature last month passed legislation requiring the use a version of the Federal Reserve of New York's published Secured Overnight Financing Rate as a Libor replacement on all contracts - which state law governs due to the fact most securities and derivatives contracts are drawn up by Wall Street banks.

Glen Fest

Credit quality of U.S. broadly syndicated CLOs improved during the first quarter, aided by a default rate on underlying loan issuers at its lowest level in two years, according to Fitch Ratings.

In a report issued Tuesday, Fitch also noted that exposure to issuers with negative outlooks – or on watch for potential downgrades – was “proportionally less” for collateralized loan obligations, in its initial 2021 surveillance report on outstanding deals.

Fitch said it identified only 13 issuers with loans held in CLOs that were in default at the end of March 2021, down from 28 at the end of December 2020. “Default exposure in U.S. broadly syndicated loan CLOs under Fitch’s surveillance at the end of 1Q2021 is at the lowest quarter-end level seen since 2Q2019,” the report stated.

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Byrider Finance on Friday closed on the first of three subprime auto ABS deals that have entered the April pipeline.

Byrider, which finances used vehicles on a “buy here, pay here” basis at its 142 company-owned and franchised lots across the country, priced $126.2 million in securities through its CarNow Auto Receivables Trust 2021-1 vehicle, backed by a pool of subprime auto loans underwritten to borrowers with a weighted average FICO of 556.

Also launching deals last week were Santander Consumer USA and DriveTime Automotive Group.

In Byrider’s CarNow transaction, the pool’s high-leverage loans (159.5% weighted-average loan-to-value) carry current loan balances of $11,073 after nine months of seasoning, on 54-month original terms. The WA coupon is 21.12%. All of the loans are underwritten serviced by Byrider Finance.

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