Securitization investors plan to increase their holdings of more bonds backed by esoteric assets more so bonds backed by consumer or commercial assets over the next 12 months, according to a survey conducted by DBRS.
Higher-yields make esoteric securitizations look especially attractive during a period of exceptionally low interest rates. Esoteric ABS includes container leass, timeshare loans, whole business and franchise loans, structured settlements and solar and renewables securities.
“Esoteric ABS provides the most opportunity for upside among ABS investors given recent spread tightening,” according to the survey. To be certain, 26 of 47 investors participating in the DBRS survey said esoteric ABS provides the most upside compared to the consumer and commercial ABS sectors.
Investors said they expect a greater increase in their purchases of whole business, franchise loans and timeshare receivables. According to the survey, solar and renewable deals, a relatively new asset class, were least likely to be purchased at increasing rates by market participants because investors expect the greatest potential for credit deterioration within that asset class over the next 12 months.
“Risks are generally seen as greater in the solar and renewable sector because of the relative newness of the sector (particularly given the long duration of the assets),” explained DBRS analysts. “The industry itself does not have several generations of performance and very few deals have been executed, thus providing little historical data to use as a basis for modeling potential risk.”
Approximately three-quarters of the investors participating in DBRS’ survey worked at asset management firms. The remainder worked at insurance companies, banks or other financial institutions. Of the respondents, more than half (57.4%) worked in portfolio management, about one-third worked in credit analysis and the rest worked in other roles at their companies.