Activity in the primary securitization market was muted in August, with little new issuance in what was until recently was the busiest consumer ABS sector, auto loans.
In fact, according to figures reported by Barclays Capital on Aug. 29, issuance of non-mortgage ABS was the slowest of the year, with $8.3 billion in new-issue transactions priced, less than half the $20.2 billion issued in July.
In contrast with July and much of the year to date, when auto-related issuance dominated, credit cards were the major contributor to primary market activity in August.
American Express priced two full-capital structure deals from its AMXCA shelf - the fixed-rate 2012-2 for $1.7 billion and the floating rate 2012-3 for $1.2 billion. These offerings were followed by a JPMorgan Securities-led General Electric transaction. The deal, called GEMNT 2012-6, had a $1.1 billion floating-rate tranche that was placed with investors. GE also sold a separate offering of $50.5 million of Class B notes in a deal called GEMNT 2012-4.
Appetite for credit card paper is strong new issue volume for 2012 has already surpassed 2011 volume, despite a contraction of receivables balances for existing credit card trusts. This year's growth has come in terms of both U.S. and non-U.S. banks' credit card ABS, according to a Bank of America Merrill Lynch securitization report from Aug. 16. The firm expects gross supply of $30 billion and a negative net supply of $53 billion for all of 2012.
A Citigroup Global Markets securitization report published the same day put year-to-date volumes for the sector at $26 billion, more than four times the issuance recorded at the same time last year.
"The recovery in the credit card ABS market continues at a brisk pace," said John McElravey, senior analyst at Wells Fargo Securities, in an Aug. 20 securitization report. "New-issue volume is up and spreads are tighter."
McElravey said that the pickup in issuance volume comes as credit card lenders are looking to refinance maturing bonds at today's lower yields and to meet the demand from investors seeking a safe haven in consumer ABS.
The demand for longer-duration assets and the current low, long-term interest rates have led issuers to push the maturities of some of their new bonds out to 2017 and 2019.
However, the decline in balances and high levels of scheduled maturities this year have meant sponsors of existing credit card ABS trusts have had little need to assign additional accounts to their trusts. In some cases, the situation has even allowed sponsors to remove receivables. The Wells Fargo research showed that outstanding credit card ABS dropped to $130 billion in August as nearly $8 billion in securities matured.
Auto-related ABS issuance in August totalled $2.6 billion (almost 30% of total non-mortgage ABS in the month), down from $11 billion in July (roughly 54% of total non-mortgage ABS), according to figures reported by Barclays.
Talk in the auto space continues to revolve around the potential for further spread tightening. JPMorgan analysts said in an Aug. 24 report that subordinate auto ABS have the most tightening potential because spreads, which for triple-B-rated autos are at 140 basis points, have not fully recovered to the tights of 125 basis points seen in 2011.
"The credit curve should flatten further given the overall increased appetite for riskier and higher-yielding assets," the analysts said. "Furthermore, subordinate ABS spreads stack up well to comparable corporate bonds. The auto structures have consistently led to rating upgrades of subordinate bonds, even on the 2007 vintage with its notably higher-than-expected cumulative losses."
Fitch Ratings said in an Aug. 28 report that normalizing lending practices in the auto space have helped sustain sales levels, specifically in the subprime sector. Auto ABS subprime issuance has reached $11.9 billion via 22 deals year-to-date in 2012 while it was at $5.9 billion through 11 deals over the same period in 2011, based on figures compiled by the rating agency.
According to Fitch, investors have been drawn to the spread levels and relatively short duration available in the subprime auto ABS sector throughout the year.
Buyers have also stayed on the short end of the yield curve since auto ABS is viewed as a means to pick up yield without extending duration, the rating agency explained in the same report