What could have been a quiet holiday week for the Canadian asset-backed market, actually turned into a watershed event, as The Royal Bank of Canada's three-part Golden Credit Card Trust securitization has brought changes that promise to alter the face of the Canadian credit market.
Despite the Thursday Canada Day holiday and Friday's official half-day status, it was a hectic week north of the border. Royal Bank's $1 billion credit card deal, was already slated to be one of the largest credit card securitizations ever for the Canadian market, let alone the first publically offered asset-backed deal since the Eaton's Department Store transaction in 1995. (Eaton had to liquidate soon after the bonds were offered.)
According to sources at several investment banks, the investor response was considered impressive, pushing the final tally to $1.1 billion, and assuring that every future bank asset deal would be a public offering.
Sources said that the ability to bring the deal to the public market shaved at least two basis points to four basis points off the yields. Traditional buyers of these deals in the private market still dominated at the public sale. However, they estimate that fully 20% of the deal went to retail investors, a hefty sum for a first-time effort.
Among the three senior note tranches, the $403.75 million of three-year notes sold at par with a 5.894% coupon and a spread of 39 basis points to comparable Government of Canada debt. The $403.75 million, five-year senior notes sold at par with a 6.01% coupon and a spread of 43 basis points to Governments. The $237.5 million 10-year tranche sold at par with a 6.19% coupon and a spread of 59 basis points over governments.
Several market sources said that despite general talk of a quiet period in the market, there is actually a rather hefty calendar of new deals in the wings, making for an active summer.
In addition to expectations of other banks testing the public waters for asset sales, several large corporate deals and car transactions are also reported to be entering the pipeline.
Sears and Canadian Tire were among names mentioned as companies with large pools of securitizable assets. Retail credit card issuers were also seen as possible new entrants as well as more activity from non-schedule-one banks.
Secondary Market Development Foreseen
While wider distribution and tighter spreads were cited as some of the benefits of the opening of a public offering market for securitized debt, some sources said the major benefit long-term will likely be the creation of a viable Canadian secondary market for asset-backed bonds.
With deals formerly dominated by large private issuance, the public was reluctant to get involved in this sector because of the lack of liquidity and reliable pricing information.
With a large supply of paper becoming available for trading, more dealers are expected to become secondary market makers, and issuers will also have to make more information available to the public, sources said.
One person said that the first sign of this is the commitment Royal Bank made to post detailed monthly information on the current Golden Credit Card Trust issues over Bloomberg. The data will include key data such as yield stats, loss experience, payment rates and other portfolio measurement standards.
- Dave Feldheim