Mention cumulative charge-offs in single-digit basis points and premiums of more than 100 basis points for 'AAA'-rated bonds, and institutional investors are bound to scoff.
But ABS backed by structured settlement payments do in fact meet those criteria. With just over $3 billion of paper outstanding, this asset class represents a tiny corner of the ABS market, but there is plenty of potential. DBRS reckons that the total volume of payments defendants and insurance companies make to injured parties over long periods of time - typically by purchasing an annuity contract - is approximately $100 billion and is growing by $6 billion to $8 billion a year. And hard economic times increase the likelihood that people receiving structured settlements will decide that they want a lump-sum payment after all and sell these payments streams.