Prime Auto ABS Shifts Gears


Issuance of securitizations of prime auto loans is falling short of the pace in 2012, a trend that analysts from Wells Fargo ascribe partly to a shift in consumer behavior from buying to leasing.

In the year through April, prime auto ABS issuance stood at $12.6 billion compared with $45.2 billion in all of 2012. Meanwhile, the subprime space has seen $8.1 billion in deals so far this year, accounting for 13.3% of total consumer ABS issuance.

In research published May 6, the analysts noted that there are fewer new car loans available to be securitized. New vehicle sales are increasing, but at a slower rate than in 2012. Cumulative new auto sales totaled 4.96 million units through April 2013, up 6.9% from the year-earlier period. But the comparative April 2012 figure was up 10.3% from the same period in 2011.

“Slower growth in sales may reduce the need for securitization as a financing alternative among prime auto lenders,” the analysts said.

They added that there was another factor in 2012’s bump up in issuance: “At least some of the 2012 increase in prime auto ABS issuance came from seasoned loans that had been resting on balance sheets and found their way to the capital markets as auto ABS spreads tightened.”

The Wells Fargo analysts pointed to the increasing popularity of auto leasing as a financing option for consumers looking for a new car or truck. This can be seen in the volume of auto leases securitized this year, $5.5 billion through April versus $12.6 billion for all of 2012.

This has lifted the market share of outstanding auto lease ABS to 18% of all auto securitizations, up from 15.4% at the end of 2011.

And it doesn’t help that auto ABS spreads have been widening, making it less attractive compared with other forms of financing available to lenders. Spreads on prime auto ABS gapped out from the fourth quarter of 2012 through early April 2013, after a long stretch of spread tightening begun in early 2012. But spreads have more recently started to narrow again.

Bromwich Breaks RMBS Silence

On May 21, West Bromwich Building Society priced the the first investor-placed prime residential mortgage securitization from the U.K. this year— a £380 million ($579 million) senior tranche from the deal Kenrick No. 2. The spread came out at 65 basis points over three-month BBA LIBOR GBP.

Fitch Ratings and Moody’s Investors Service alike gave the senior piece preliminary triple-A ratings. The A notes have a legal final of 33 years and a weighted average life of 3.1 years. A B tranche was unrated.
The deal is the third mortgage securitization originated by West Bromwich and its second since the financial crisis, according to a Moody’s presale. It was estimated that total credit enhancement for the class A notes would be 12.40% at closing.

Contrary to most U.K. RMBS, there is no equitable assignment of mortgages. Instead, the deal has an originator trust structure, whereby mortgages are ring-fenced in favor of the issuer and West Bromwich.

A dearth of U.K. prime RMBS issuance this year has dampened overall securitization volumes in Europe.  The Bank of England’s Funding for Lending Scheme (FLS) has stifled securitization since launching in mid-2012.

The scheme allows banks and building societies to use certain pools of loans as collateral against borrowing Treasurys from the BoE with a maturity of up to four years. Originators can borrow up to 5% of their loan book, plus any next expansion of lending. FLS funding rates are lower, in most cases, than what the market offers, eroding the appeal of securitization. In April, the BoE extended the FLS from its initial termination date of February 2014 to January 2015.

Santander UK Makes More Noise

But Bromwich may not be the only U.K. originator to break the silence this year.

Santander UK is readying an investor-placed securitization of residential mortgage loans, according to rating agency presale reports.

The £1.35 billion-equivalent of sterling- and dollar-denominated notes will be issued via the bank’s Holmes Master Issuer PLC, increasing what has been issued off the trust to £15 billion from £13.2 billion. The notes will be indirectly collateralized by a pool of first-ranking mortgages secured on properties in England, Scotland, and Wales. Santander UK originated all of the loans in the master trust.

S&P said the Holmes Master Issuer’s latest issuance will consist solely of class A notes with 20.56% of credit support. There are three, as-yet unsized tranches; a U.S. dollar money market tranche is rated A-1 by Standard & Poor’s and P-1 by Moody’s Investors Service; a sterling tranche expected to mature in October 2016 and another sterling tranche expected to mature in January 2017 are both rated ‘AAA’/’Aaa.’