As the asset-backed securitization market closes in on the half-year mark, the various subsectors are experiencing different stories in terms of the pace and strength of note issuance.
In a quick snapshot of the market, overall issuance for May totaled about $23 billion, according to early data from the Securities Industry and Financial Markets Association (SIFMA). That represents a month-over-month bump of 2%, and a year-over-year change of 68%.
Collateralized loan obligations, an all-season perennial in the asset securitization market, saw issuance of about $29.2 billion on the strength of 65 new issue and refi/reset deals, according to JPMorgan data.
That breaks down to about $13.9 billion in new issuance from 28 deals, and $15.3 billion 37 refi/reset transactions, said John Kerschner, head of U.S. securitized products at Janus Henderson Investors, citing information from JPMorgan.
While the market looks like it is poised to deliver lumpy volumes across the different asset classes, better-than-expected credit performance does appear to be more consistent, especially among more consumer-focused asset classes.
Credit performances in auto and credit card ABS programs were solid and better than expected, according to analysts at FitchRatings, who gave much of the credit to more restrained and rational consumer behaviors such as a higher personal savings rate. The latter was bolstered by infusions of cash from government pandemic relief.
The Fitch analysts gave their insights during the U.S. ABS Performance Update on June 16.
Setting aside the obvious benefit of six rounds of government intervention totaling $4 trillion in spending, softer factors went a very long way to support the auto sector, according to Margaret Rowe, a senior director at FitchRatings, overseeing auto ABS.
A decline in public transportation traffic led to an overall increase in vehicle utility, which kept auto finance payments high on their list of financial priorities, Rowe said.
Low wholesale inventory on new and used vehicles prompted dealers to offer attractive incentives to buyers. Further, a supply shortage of highly technological car components, including semi-conductor microchips, made ramping inventories up again difficult, Rowe said.
All in all, the auto sector experienced tremendous benefits in terms of preserving collateral values and note performance. For May 2021, auto collateral was projected to have a projected residual value retention of 25%, the highest they have seen since Q2 2011, according to Rowe.
In the credit card sector, government measures plus credit card issuers own response in the form of payment deferral programs were almost medicinal, according to insights from Herman Poon, a senior director at Fitch Ratings, overseeing credit card ABS.
On the deferral programs the take rates were low, from 5% to 10%, Poon said. Also, extensions on these deferrals were insignificant, and didn’t translate into material movements of card performance metrics.
Most of the strength of that performance came from consumers themselves showing greater discipline, not the deferral programs, Poon noted.
Total payment rates over a 12-month period averaged 32.5% in March 2021, higher than the 29.7% observed in March last year, Poon said.
“Consumers did shift their behavior, and adapted to the changing reality from last year to now,” he said. “They were more rational, and with the government stimulus, that did translate to increased savings and resulted in [consumers] paying down balances.”
