Interest Rates, Spread Spur 12 Securitizations in Two Weeks

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Positive market dynamics have prompted auto lenders to issue 12 securitizations in the first two weeks of May, a historically quiet time, Auto Finance News has learned.

The 12 transactions combined to $8.7 billion.

The top three issuances came from Toyota with an upsized amount of $1.6 billion, Ford Motor Credit with $1.5 billion, and AmeriCredit with $1.1 billion.

The other securitizers were American Car Center, Consumer Portfolio Services, Credit Acceptance Corp., First Investors Financial Services, Flagship Credit Acceptance, Westlake Financial Services, and Mercedes-Benz Financial Services, which issued two transactions.

“It’s market-driven mostly,” said Ines Beato, director of S&P Global Ratings. “Usually, it’s rates going up, or the current spreads and so on that make the timing of a deal more favorable than others.” The spread — a bond’s yield relative to the yield of its benchmark — is used both as a pricing mechanism and as a relative value comparison between bonds.

Benchmark interest rates were recently increased by the Federal Reserve in March, to a range of 1.5% to 1.75%; the Fed has signaled rates will be hiked two more times before yearend.

In a recent report from S&P on new issue volume, ABS issuance was $18 billion in April, bringing year-to-date volume to $87 billion, a 9% year-over-year increase. Of the April total, $8 billion was auto-related issuance, with $6 billion backed by prime auto loan receivables.

“Generally, there is more origination volume at the issuer level during tax season,” Beato said. “They are looking for financing on those loans, so that dictates some of the volume.” Historically, the first quarter is busier and then there’s a “lull” in the summer months, she said, adding that “we haven’t experienced that in the last couple of years.”

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