Yield Grab


Interest rates may be headed higher, but for now, investors are still pretty hungry for yield. That makes some of the more esoteric corners of the asset-backed market pretty attractive. In our cover story, Felipe Ossa looks at one of these, the equity portion of securitizations of guaranteed student loans. The so-called residual interest in older FFELP securitizations are throwing off cash, making them attractive to some seasoned investors. Sallie Mae, one of the biggest holders of resids, went so far as to securitize, or resecuritize, a bundle of them. But this was probably just an exercise to establish a market price. For now, most of the activity is in the secondary market, where other players, including Nelnet, are buying up resids.

Several other stories look at asset classes that are truly new, and not just small and previously overlooked. Nora Colomer explains how SolarCity overcame numerous hurdles to obtain a credit rating for the first securitization of leases on residential solar panels. Since it was only low investment grade, some market participants wonder if it was worth the expense to widen the appeal, particularly of such a small deal. Other solar deals in the works may opt to go without.

Another recent first is the securitization of rental property income. The debut sponsor was Invitation Homes, a portfolio company of Blackstone. Colony America Homes and America Homes 4 Rent are also planning deals.†
CLOs are a different story; yields are actually pretty high, yet buyers for the highest-rated tranches remain relatively scarce. Carol Clouse looks at some of the things arrangers are doing to tailor triple-A tranches to these big investors.

We also have two articles that look at the downside of non-banks acquiring large portfolios. One, by Rachel Witkowski of sister publication American Banker, discusses some of the hurdles of transferring these pools of loans and the reaction from shareholders and regulators. The other, by ASR contributor John Hintze, looks at the reaction from RMBS investors, who often see their cashflows disprupted when one non-bank, Ocwen, takes over servicing the mortgages backing their bonds. Thatís because Ocwen is more apt to write down the principal of troubled loans.

Johnís other story looks at the likely impact of Finraís proposal to disseminate secondary market pricing on some asset-backed securities.