Investors and Issuers continued to grow comfortable with non-traditional securitizations in 2013;  volumes for the sector neared $30 billion, the most issuance seen since 2007.

Standard & Poor’s published comments from its roundtable discussion on non-traditional securitizations today.

Benjamin Fernandez, managing director and head of nontraditional ABS at Barclays, participated on the panel. Fernandez explains that the growth of this area of the securitization market “suggests that ABS investors continue to focus on well-structured investment-grade rated structured product to generate outsized returns.” 

Issuers are attracted to securitization because it offers comparable or higher leverage, more flexibility, and lower cost than the traditional bank and bond markets.

“We've seen a meaningful expansion in issuance volumes across both the whole business/royalty securitization space in particular as well as nontraditional ABS in general, driven both by new issuers entering the market and deal sizes increasing,” said Fernandez.

Earlier this year, Barclays structured and placed a $1.15 billion whole business securitization for CKE Restaurants (Carl's Jr. and Hardee's brands), which was the second whole business securitization over $1 billion the bank has completed in the last two years.

Barclays also led two large securitizations in the wireless tower space for American Tower ($1.8 billion) and SBA Communications ($1.3 billion), which priced to strong demand from both ABS and corporate investors.   “Investors are attracted to these deals by virtue of the strong structural credit protections, investment-grade ratings, and yield pick-up relative to comparably rated corporate bonds and ABS,” Fernandez said.

Many of these securitizations are also trading well in the secondary market. Investors have seen excellent returns--both in the short term and long term--as many of these securities have traded fairly regularly post-issuance and are priced significantly above par.  

Robert Horowitz, managing director at Guggenheim Securities, who also spoke on the S&P panel said that a major factor contributing the robust secondary liquidity is the low interest rate environment, which has “helped sustain interest in the higher-yielding esoteric ABS. “

“Spreads on traditional consumer ABS have been squeezed into all-time lows,” he said.

Horowitz also points to healthy sponsorship in secondary markets from a variety of investor types, including insurance companies, money managers, and hedge funds as another factor that lead to increased trading. “Interestingly, recent trades have gone not only to investors who bought a new issuance but importantly, I think, to investors for whom the trade represents their first participation in the sector,” he said. “This suggests continuing broadening and support for the asset class.”

Interest in non-traditional securitizations is expected to continue in 2014. Horowitz expects to see the “reemergence of using securitization as an M&A financing tool.”

“Pre-crisis, whole business securitization was regularly considered as a financing option in the context of LBOs or M&A situations,” said Horowitz. “While we haven't yet seen this type of activity post-crisis, we do know that sponsors are again beginning to seriously evaluate whole business securitization in that context.”


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