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Weekly Wrap: Will Yellen urge re-opening the spigot on Fed's loan programs?

President-elect Joe Biden’s selection of Janet Yellen to be Treasury secretary increases the odds the government will double down on pandemic recovery efforts, which include lending programs that enable banks to provide credit to households and businesses.

If confirmed, Yellen — a former head of the Federal Reserve — would inherit a shaky economy rattled by the coronavirus pandemic and growing division between Treasury and the Fed about how the recovery should proceed.

After Treasury Secretary Steven Mnuchin essentially ordered the central bank to shut down credit backstops such as the Main Street Lending Program, many experts expect Yellen would work with Fed Chair Jerome Powell immediately to revive its emergency lending programs and would even try to convince Congress that those programs need more fiscal support.

Janet Yellen
Janet Yellen, chair of the U.S. Federal Reserve, speaks during a Senate Banking Committee hearing in Washington, D.C., U.S., on Thursday, July 13, 2017. Yellen said yesterday the U.S. economy should continue to expand over the next few years, allowing the central bank to keep raising interest rates, while also stressing a gradual approach to tightening as the Fed monitors too-low inflation. Photographer: Andrew Harrer/Bloomberg

“Both Powell and Yellen believe that it's good to have a full toolbox, and that having those programs available is helpful even if you don't end up using them,” said Ian Katz, a director at Capital Alpha Partners.

Mnuchin last week called on the Fed to let programs meant to limit the economic effect of COVID-19 expire at the end of the year and return unused funds appropriated by the Coronavirus Aid, Relief and Economic Security Act to backstop the facilities.

After the Fed initially resisted, saying it preferred "that the full suite of emergency facilities established during the coronavirus pandemic continue to serve their important role," Powell later relented and said in a letter to Mnuchin that the central bank would return the money.

That means five programs, including the Main Street Lending Program and the Municipal Liquidity Facility, will shut down on Dec. 31. The $600 billion Main Street program provides banks financial backing to make loans to midsize firms meeting certain criteria that need pandemic relief. But the program has been criticized for a slow start and limited participation by banks and borrowers.

Brian Gardner, chief Washington policy strategist at Stifel, argued in a research note that replenishing the emergency lending programs will be one of Yellen’s top priorities once she is confirmed.

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Hannah Lang

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Hertz plans to issue up to $4B in bonds for delay-draw ABS notes offer

Hertz Corp. is sponsoring a $4 billion delayed-draw, asset-backed notes offering, which will be sold to fund new rental-fleet purchases as the company works through its Chapter 11 bankruptcy.

According to ratings agency presale reports, Hertz will offer a Class A note tranche that can issue up to $3.5 billion in bonds, and a Class B tranche totaling up to $500,000.

Earlier this month, Hertz Corp. obtained permission in bankruptcy court to proceed with the new offering as a means to purchase new vehicles to operate in its fleet for Hertz, Thrifty and Dollar brand rental-car locations.

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Glen Fest
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2021 GSE loan limit will be between nearly $550K and $822K

In 2021, Fannie Mae and Freddie Mac’s maximum single-family loan size will grow to $548,250 in most areas, with a ceiling of $822,375 in pricier neighborhoods.

The baseline loan limit reflects a 7.42% seasonally adjusted home-price increase, according to the Federal Housing Finance Agency. The FHFA bases that increase on a year-over-year comparison of the average for the third quarter. The baseline limit during 2020 was $510,400, based on a 5.38% increase in home prices.

The price increase illustrates the extent to which federal rescue programs and a supply-demand imbalance have been a counterweight to economic pressures from the pandemic. The coronavirus was originally expected to exert downward pressure on housing values prior to the implementation of these programs.

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Bonnie Sinnock
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ServiceMaster proposes first-time $725 million whole-biz securitization

ServiceMaster Brands, a restoration and cleaning services firm for commercial and residential clients, is sponsoring a first-time securitization of fees and other revenues received from nearly 2,400 of its franchisees in the U.S. and Canada.

According to ratings agency presale reports, ServiceMaster Funding LLC 2020-1 is a $725 million bond offering that will be used to repay the outstanding debt for ServiceMaster, consisting of a $675 million bridge loan utilized by parent company Roark Capital Group that acquired ServiceMaster last month.

Roark Capital owns several prominent franchise operations that have frequently utilized whole-business securitizations similar to the ServiceMaster 2020-1 deal.

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SFA to Mnuchin: Don’t rush GSEs out of conservatorship

The Structured Finance Association has called on Treasury Secretary Steven Mnuchin to refrain from immediately releasing the government-sponsored enterprises from conservatorship in response to a report that such a move was under consideration.

“We call upon Treasury to take responsible steps to avoid the potentially destructive effects of releasing the GSEs prematurely,” CEO Michael Bright said in a letter sent to Mnuchin from the group on Monday. Bright previously served as an executive at government mortgage bond insurer Ginnie Mae from July 2017 to January 2019.

The Federal Housing Finance Agency has been consistently intent on a conservatorship exit under the Trump administration and recently completed a redrafted capital plan to that end. That’s given rise to the notion that the Trump administration may want to rush to complete such an exit on the way out. The Biden administration is expected to put an exit from conservatorship on the back burner.

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Bonnie Sinnock
Domino pieces standing in a row. 3D illustration
Domino pieces standing in a row. 3D illustration.

New-issue ABS pipeline

Issuers filing ABS-15G registrations for new-issue U.S. ABS for the week of Nov. 20-27 (per Finsight.com)

MFA 2020-NQM3 Trust RMBS
Carvana Receivables Depositor LLC AUTO
Starwood Mortgage Residential Trust 2020-INV1 ESOT
WELLS FARGO COMMERCIAL MORTGAGE SECURITIES INC CMBS
Finance of America Structured Securities Trust RMBS
NAVSL 2020-I Navient Corp SLAB
Bayview Financing Trust 2020-3F RMBS
FREMF 2020-K121 Mortgage Trust CMBS
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