“Las Vegas is cool again.”
That statement, from a speaker on one of the opening panels of the American Securitization Forum’s 2013 conference, speaks volumes about the past year and about expectations for the one ahead.
Many sectors of the market are rallying, investors have returned, enthusiasm is running high, and for good reason. Liquidity is strong and likely to remain so for a while. The macroeconomic news is mostly good. There’s also a degree of regulatory certainty taking shape.
All of this gives market players confidence that the extraordinary spread tightening that took place over the course of 2012, and has continued in January of this year, is justified. But, as we detail in our coverage of the ASF conference, some sectors are starting to look rich. It’s also important to keep an eye on the loosening of underwriting criteria that has already begun.
In this month’s cover story, Felipe Ossa looks at film securitization, a sector that, in some respects, is still recovering from the effects of the financial crisis. A number of film right securitizations that came out in the mid-2000s slapped junior investors with steep losses. Now there is some discussion about what structural features, if any, should be re-thought to make subordinated tranches more attractive.
Notwithstanding the effects of the financial crisis, this asset class has an important appeal, in addition to the glamour associated to filmmaking: its performance does not move entirely in synch with more mainstream securitization products.
Our market story focuses on the auto sector, which has seen some of the most dramatic spread tightening over the past year. Notably, spreads on subprime auto deals and on the subordinated tranches of prime deals have tightened the most. In particular, investors are becoming more comfortable with the way subprime auto ABS is structured now that insurance is no longer available.
Kevin Duignan and Marjan Van Der Weijden of Fitch Ratings look at securitization’s expanding role in the global capital markets. Overseas issuers are taking advantage of strong U.S. investor appetite, increasing their issuance in this country. But it’s not just U.S. investors who are looking for opportunities beyond their borders; a number of product types have proven to be attractive from a credit and pricing standpoint to international investors.
Nora Colomer, who first wrote about the REO to rental market a year ago, when it was in its very early stages, checks back in. She finds plenty of buzz, but still no clear indication of what role securitization can play in the financing of repossessed single-family homes to be converted into rentals. One of the big challenges is that using mortgage liens as collateral would be prohibitively costly in a deal backed by a large number of low-value properties. So market players are looking instead to use equity pledges in the vehicle that owns the properties as collateral.
On the regulatory front, John Hintze writes that the Basel Committee on Banking Supervision’s decision to allow banks to include highly rated residential mortgage backed securities into their calculation of a new liquidity coverage ratio is undoubtedly good news, at least for European RMBS. Depending on how local regulators interpret the changes, however, they may offer less benefit than hoped for U.S. banks.