Auto ABS deals were the only new issues to make an appearance in 4Q08.
Issuers AmeriCredit Corp., Honda Motor Co., Nissan Motor Corp. and Volkswagen AG braved the volatile securitization market to come out with transactions with a collective total of $3.1 billion.
To call these issuers brave is an understatement. According to Deutsche Bank Securities' Securitization Monthly for January, aside from the overall poor macroeconomic environment that has badly hit the consumer sector, these firms had to face "unprecedented market weakness" in the auto industry specifically.
Deutsche analysts said that new vehicle sales posted sizeable declines, down 36.8% year-over-year in December, making last year the sector's worst since 1992. They added that with consumer confidence close to record lows and unemployment rates still increasing, more declines are expected this year.
There is also the specter that the Big Three U.S. auto companies will experience significant financial failure, which is a "stark reminder" that the ABS market is a credit market that is vulnerable to corporate headline risk, according to Wachovia Securities analysts in their yearend review.
AmeriCredit, one of the brave, came to market with two deals almost back-to-back over the quarter. However, after these two deals priced, Fitch Ratings downgraded the long-term Issuer Default Rating (IDR) of AmeriCredit Corp. (ACF) to 'B' from 'B+' in December.
But trials and tribulations aside, the bottom line is that these companies have needed and continue to need securitization as a funding source, Street analysts said, even if it has meant that deals came to market with sub-standard execution and were only partially funded.
By contrast to the last quarter, 3Q08 showed a little more variety, with autos sharing the limelight with credit cards and student loans. Each had $2.2 billion, $9.9 billion and $5.5 billion in issuance, respectively.
In terms of the same time period in 2007, aside from the three staple consumer asset classes, commercial and even residential mortgage deals still showed some life (See 4Q07 Chart).
Indeed, 4Q08 was a rough quarter for ABS in terms of issuance, and 2008 overall was not anything stellar either, to say the least. The prospects for issuance are no better for at least the first half of 2009. According to ASR's Jan. 5 issue, although deal volume is not expected to surge in the earlier part of this year, Street analysts are hoping that by 2H09, the backlog of assets that need term funding will find its way to the ABS market. On the consumer side, market observers believe that, despite the current consumer credit crunch, there are still securitization issuers that need to access the ABS market as a funding tool, particularly in autos.
As of now, the ABS market is still waiting to see whether the promise of ABS volume will come to fruition.
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