As an increasing number of companies look to structured products for funding, and short-term rates continue inching higher, ABCP issuance continues growing. As of the second quarter, U.S. ABCP outstandings reached $630.7 billion, a 5.1% increase from the first quarter and a 6.5% spike from the second quarter of 2004. And, use of extendible-note programs has increased to $99.9 billion outstanding as of June, up from $75.2 billion one year previous. That represents a jump to 15.8% of all ABCP issuance outstanding from 12.7% a year earlier.
For companies not yet prepared to hit the term securitization market or whose asset types may not work well within its framework, ABCP is considered a viable option. Particularly now as the cost of funding heads north, borrowing through secured avenues is beginning to look more attractive versus the rising interest rates on unsecured lines of credit.
The U.S. auto industry, for one, is increasing its reliance on the structured finance market for funding needs, according to David Wyss, chief economist at Standard & Poor's. Conduits for DaimlerChrysler, Ford Motor Credit and General Motors Acceptance Corp. alone account for about 5.8% of all ABCP issuance year-to-date. In fact, at $12.7 billion in outstandings, Ford's program is the second-largest single-seller ABCP conduit, according to S&P, while GM's two combined single-seller facilities would combine to rank fourth with more than $8 billion outstanding. And, GMAC unit Residential Capital Corp. in a Securities & Exchange Commission filing last week said it may seek to increase its access to the ABCP market as a way to pay down what it has borrowed from affiliates.
But as more players look to gain financing through conduits, limits on exactly how much they can borrow have dropped. As conduit utilization rates rose - increasing 7% year-over-year - financing limits fell to $898.4 billion in June from $934.8 billion a year earlier. Forty-seven ABCP programs, as of June 30, fell in the $2 billion to $5 billion issuance range, while 42, the second highest concentration, range above $5 billion. Only 28 conduits issue between $1 billion and $2 billion, while 23 are in the $500 million to $1 billion range. The conduits, on average, had used about 70% of available credit as of both June and March of this year, up from 63% used in June 2004, but still down from 74% utilization rates averaged from September 2002 through March 2003.
Not surprisingly, at 20%, mortgage assets constituted the bulk of the assets backing outstanding ABCP, but autos were not far behind with a 15% presence, tied with CDOs, which also made up 15% of all ABCP assets. Autos constituted 19% of all entering sellers by dollar amount of outstanding collateral, while mortgages were 22% and CDOs 19%.
Paper issued out of single-seller conduits, popular for mortgage warehouse financing, increased 18.3% year-over-year, while securities arbitrage conduits grew even more, by 29.8%. Issuance out of multi-seller conduits managed to increase slightly this year by 2.2% to reach $432 billion, despite a decline in the overall number of the conduits, to 93 in the second quarter of this year from 102 last year.
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