Subprime ABS is making a comeback, mostly through auto deals. Some issuers are even doing these deals for the first time.
So far this year, there've been nine subprime auto deals, according to ASR's Scorecards database.
Among them: two upsized deals from seasoned issuer Santander Consumer USA, and a debut oversubscribed transaction from Exeter Finance.
In this month's cover story, John Hintze said that the catalyst for subprime's return has been investors' thirst for more yield in a parched landscape of meager returns on all sorts of investment products.
But there are still many pockets of the market struggling to grow.
For one of her articles this month, Nora Colomer talked to players who say utility deals should be pricing closer to agency securities given their low risk. Nora reports that stranded cost securitizations, as these utility transactions are known, benefit from their so-called "true-up" mechanism that requires the ABS structure to recalculate charges if necessary, ensuring the recovery of sufficient payments to the bonds.
In the housing sector, there are the usual difficulties in nonconforming mortgage land, as Bill Berliner examines in his column this month. Highlighting an article in ASR sister publication National Mortgage News on the closing down of many Jumbo conduits, Bill talks about how lenders are facing obstacles in securitizing their mortgage portfolios.
Only Redwood Trust - which priced its fifth and latest Jumbo deal on March 27 - has been able to issue private-label transactions in the last three years.
Of course, Berliner lays much of the blame for scarce securitization on regulations, namely the Dodd-Frank Act and its implementation. But he also points out that lenders are shying away from the market because of new subordination levels modeled by the rating agencies. These levels rely on default and loss assumption that are, in his words "extremely onerous."
European players are also dealing with their own regulatory woes. As Felipe Ossa reports in his story this month, the latest round of proposed European regulations on rating agencies, known as CRA3, has a rule that would mandate ratings rotation.
As its now drafted, issuers would have to periodically change the agencies that rate them or any of their transactions based on a set timetable. Depending on an offering's maturity, as well as other factors, as many as six agencies might be rotated to rate a transaction over its life.
Felipe says that a number of financial sector players warn that the proposal will inflict serious damage on the market, bringing about stunted histories, shallower rating analyses, and ratings shopping. In structured finance, having to rotate ratings on a transaction and on all its counterparties at the same time would be exceedingly confusing and costly.
