$120B in ABS volume drives spreads wider

Auto asset-backed securities volume is outpacing market expectations, driving spreads wider and largely defined by prime deals even as subprime issuers came to market this week. Prime auto asset-backed securitization (ABS) issuance has “exceeded expectations” from earlier in the year, Elen Callahan , head of research at the Structured Finance Association , told Auto Finance News . Auto ABS issuance landed at $15.1 billion in August and at $13.8 billion in September, according to an Oct. 13 JP Morgan Securities report. Volume has “been pretty significant and we have two more months to go,” Callahan said. Auto ABS supply totaled $120.6 billion year-to-date as of Oct. 13, up compared with $95 billion YTD in 2022 and with a pre-pandemic total of $111 billion at yearend 2019, according to JP Morgan. Broken down, prime loan ABS volume clocked in at $57.3 billion as of Oct. 13 while nonprime loan issuance totaled $27.9 billion. Meanwhile, spreads across the entire ABS market have widened in the past few weeks but remain tighter than earlier in the year, Eugene Belostotsky , ABS analyst at Citigroup , told AFN . In the past two weeks, prime triple-A rated auto spreads have widened five to 10 basis points (bps) over Treasuries, according to JP Morgan. Spreads on prime triple-A rated three-year notes landed at 95 bps over Treasuries as of Oct. 12, compared with 85 bps over Treasuries on Sept. 28. By comparison, in March the same spreads sat at 105 bps over Treasuries. Auto ABS spreads have widened largely due to "a lot of supply in a short amount of time,” Kayvan Darouian , director of consumer ABS research at Deutsche Bank , told AFN . Captives, banks come to market GM Financial , Capital One Auto Finance , CarMax Auto Finance , Mercedes-Benz Financial Services and Nissan Motor Acceptance Co. have issued prime auto ABS deals within the past month, according to Finsight , which monitors securities. Subprime issuers from Sept. 26 month-to-date include Consumer Portfolio Services , First Help Financial , Global Lending Services , Lendbuzz , Lobal Financial Corp. , Santander Consumer USA , Stellantis Financial Services and Valley Strong Credit Union , according to Finsight. Bridgecrest Acceptance Corp. issued its first auto ABS deal of the year Oct. 18, a $555.2 million deal backed by subprime auto loans. Auto ABS volume is nearing 2021’s record of about $131 billion, Deutsche Bank’s Darouian said. Part of the drive is to get deals priced before the Federal Reserve approves another potential rate hike this year, he said. “The new-issue market has been healthy overall, but definitely for autos,” Darouian said. “There is a lot of supply coming in before quarter-end and the last Fed meeting.” Retail lease auto ABS issuance is also strong, reaching $21.9 billion as of Oct. 13 compared with $16.2 billion YTD 2022, according to JP Morgan. Increased auto ABS supply is due in part to new prime issuers and issuers coming to market for the first time in a while, Structured Finance Association’s Callahan said. Ent Federal Credit Union and General Electric Credit Union , for example, issued their first-ever auto ABS deals this fall. “It goes back to the [auto ABS] structure,” Callahan said. “ Auto ABS is still very strong today . Auto ... provides good relative value for investors.” Auto Finance Summit, the premier industry event for auto lending and leasing, returns October 29-31 at the Bellagio Las Vegas and features a fireside chat with F ord Credit. To learn more about the 2023 event and register, visit autofinance.live/afs/ .

$120B in ABS volume drives spreads wider

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