Weekly Wrap: SF volume down 24% from 2019 pace after slow November

December 4, 2020 12:05 PM

New issuance of U.S. structured-finance portfolios is down 24% year-over-year, following a sluggish November volume that was behind only the post-COVID-19 slump in April and May.

According to S&P Global Ratings, the $24 billion in new deals across asset-backed and mortgage-backed securities, as well as collateralized loan obligations, brought the 2020 year-to-date totals to $426 billion – compared to $557 billion for the first 11 months of 2019.

Last year, November’s total volume was $65 billion.

“We expected activity to slow last month, as issuers aimed to price deals ahead of any potential election related uncertainty,” the report stated.

ABS issuance of more than $10 billion last month included $5 billion in auto-loan and lease transactions, $3 billion in esoteric deals and approximately $2 billion across student- and personal-loan securitizations. No commercial ABS across equipment, fleet and dealer floorplan sectors were issued. ABS volume stands at $190 billion, down 21% year-over-year.

CLO activity involved $7 billion in new-issue portfolios (excluding refinancing activity). S&P noted that some recent offerings included the traditional five-year reinvestment periods for CLOs versus the three-year periods that most managers were including in new offerings this summer. Total CLO volume to date is $81 billion, down nearly 25% from the 2019 pace.

CMBS issuance was just over $3 billion last month, involving two conduit and three single-borrower transactions, S&P reported. The $48 billion in volume is down 42% on a year-over-year basis. Most deals have carved out retail and lodging properties from the collateral, with sponsors concerned about their performance from short-term pandemic impact. (The retail brick-and-mortar section also carries long-term risks based on a long-term consumer shift to online shopping that accelerated during coronavirus-driven business closings).

S&P’s report said residential MBS deals totaled $3 billion in November, bringing the 2020 total to $106 billion with a month remaining in the year – down 14% to the same 2019 period. The mix of deals includes agency credit-risk transfer, non-QM, re-performing/non-performing, reverse mortgage, prime jumbo, investor properties, and single family rental.

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Pre-owned price recovery provided COVID-19 buffer for auto ABS

Following a collapse of used-auto prices in April after the coronavirus outbreak, analysts say the subsequent recovery of pre-owned vehicle prices is providing a backstop to ABS issuers in auto-related sectors including finance companies, rental car firms and commercial-fleet lessors.

DBRS Morningstar stated the “sharp recovery has led to strong gains on the disposition of vehicles positively impacting earnings, as well as lowering loss severities on repossessions.”

In the spring, according to a report published this week by DBRS Morningstar, the J.D. Power Used Vehicle Value Index reported a 13.2% month-over-month decline in values in April 2020, which was more than twice the previously worst one-month drop of around 6% in late 2008.

Early expectations were for a significant decline in values the second quarter due to the collapse of rental-car demand after the onset of business and leisure travel restrictions from the COVID-19 pandemic – which could force rental-car companies to dump un-needed fleet vehicles into the used-car market.

But instead, a recovery ensued as federal and state governments provided stimulus actions to support households and new-found consumer confidence (along with record-low interest rates) that pushed more buyers into the market.

Another factor: more work-from-home professionals no longer using mass transit for commuting instead went car shopping at dealerships. These buyers were opting for more used vehicles, since many dealers had little new-car inventory because of coronavirus-related shutdowns at manufacturer auto plants.

The resulting demand provided auto-finance companies with strong third-quarter results of used-vehicle dispositions. DBRS Morningstar noted Ford Motor Credit Co. reported a 7.5% increase in its average off-lease auction values quarter-over-quarter – providing 31% of the captive-finance lender’s earnings from July through September.

Avis Budget Group sold a record 75,000 vehicles in the quarter, generating gains of $109 million compared to just $37 million in the same period in 2019.

Glen Fest

Why is Fannie Mae abandoning CRT?

The mortgage giant Fannie Mae has drastically curtailed transferring credit risk to private investors this year, a move that industry veterans say could hurt taxpayers as the Trump administration tries to relinquish control of the government-sponsored enterprises.

The shift is partly due to a new capital framework devised for Fannie and Freddie Mac by their regulator, the Federal Housing Finance Agency, and has resulted in the percentage of Fannie’s single-family loans with credit enhancement — loans that have factors like transferred risk — falling to 45% as of Sept. 30, down from 53% at the end of last year.

“That means that risk is concentrated back on the balance sheet of Fannie and Freddie, and that's leaving more of it being absorbed by the taxpayer,” said Ed DeMarco, president of the Housing Policy Council and former acting director of the FHFA, who started the credit risk transfer program in 2013.

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Hannah Lang

U.S. Bankruptcy Tracker: Vaccine Wont Halt Travel, Retail Decay

A "Going Out of Business" sign is outside a Century 21 department store in the Brooklyn borough of New York, U.S. Photographer: Nina Westervelt/Bloomberg

Nina Westervelt/Photographer: Nina Westervelt/Bl

Vaccine won’t halt travel, retail decay

Credit markets are surging on hopes that a successful coronavirus vaccine will soon be rolled out, slashing the inventory of distressed debt and all but halting U.S. bankruptcy filings. But the pandemic has permanently damaged travel and retail companies, some of which may not survive next year, according to Kelly Conlan, managing director at Duff & Phelps LLC.

“The next wave of filings will come from the companies which continue to be impacted by the pandemic, even after a vaccine is distributed,” said Conlan, who specializes in disputes and tort claims consulting.

Providers of travel products and services – including conferences – are most at risk as work-from-home measures become entrenched and their clients transition to video communication, according to Conlan.

“Huge industries that relied on business travel won’t return to pre-Covid levels,” Conlan said, citing hotels and airlines as examples. “The whole system as we know it is beginning to contract.”

Retail will also struggle, after a disappointing back-to-school shopping season, with the exception of Amazon and companies like Walmart that successfully pivoted to e-commerce. “The usual end-of-the-year Christmas miracle isn’t happening this year,” Conlan said.

Retailers are negotiating with landlords and restructuring debt to avoid filing for bankruptcy. But these measures are “Band-Aids to get through year’s end that will only last until early next year when a robust number of bankruptcy filings will come,” Conlan said.

Her forecast for the timing of the next wave of Chapter 11s is in line with that of other bankruptcy experts. Borrowers in the entertainment, food and beverage, hospitality and leisure services are especially vulnerable the Covid-19 pandemic, according to Howard Steel, partner in the financial restructuring group at law firm Goodwin Procter.

Bloomberg

Golub Capital Partners TALF 2020-2, L.P.	ESOT
Loanpal Solar Loan 2021-1 Ltd. & Loanpal Solar Loan 2021-1 LLC	ESOT
CoreVest American Finance 2020-4 Trust	CMBS
ABPCI Direct Lending Fund ABS I Ltd	ESOT
BX Commercial Mortgage Trust 2020-VIV4	CMBS
SDFNR 2020-1	ESOT
FREMF 2020-K122 Mortgage Trust	CMBS
MORGAN STANLEY RESIDENTIAL MORTGAGE LOAN TRUST 2020-1	RMBS
Cedar Crest LLC	ESOT
GCAR 2020-4	AUTO
PEAR 2020-1, LLC	RMBS

Weekly Wrap: SF volume down 24% from 2019 pace after slow November

Pre-owned price recovery provided COVID-19 buffer for auto ABS

Why is Fannie Mae abandoning CRT?

Vaccine won’t halt travel, retail decay

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