Consumer Loan-Backed Bond Issuance At A Trickle

Date : 10/14/2010 @ 2:56PM
Source : Dow Jones News
Stock : Tal Education Grp. American Depositary Shares (TAL)
Quote : 33.65  -1.26 (-3.61%) @ 5:23PM

Consumer Loan-Backed Bond Issuance At A Trickle

Wyndham Worldwide Corp Common Stock (NYSE:WYN)
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A smattering of small-sized bonds has emerged on the consumer asset-backed market this week and the flow is likely to remain muted for the rest of the year.

Wyndham Worldwide Corp. (WYN) and TAL International Group (TAL) are among the issuers this week. Wyndham's $250 million bond is backed by timeshare receivables and TAL's $203 million bond is backed by freight-container leases.

On Wednesday, the U.S. federal regulator for credit unions, the National Credit Union Administration, announced it is selling residential mortgage-backed securities valued at $3.847 billion. These bonds are bundled loans from failed institutions the NCUA has taken over.

Industry participants expect about $100 billion in new consumer loan-backed bond sales this year. These are bonds backed by loans for cars, for education and credit card debt. Last year, $140 billion in such bonds were sold. So far this year, a little over $80 billion have priced, with more than half sold in the auto sector. The recent slowdown in issuance began right before ABS East, a securitization conference held last week in Miami.

"The pace of supply has slowed recently, but we are starting to see a pick-up in deal roadshows and many issuers used the recent ABS East conference as an opportunity to market deals," said Brian Wiele, head of Americas securitization syndicate at Barclays Capital in New York. "We would expect issuance volume to accelerate in the near term."

That said, it is unclear how much issuance will rebound, given the weak economy and changes in accounting and other regulatory rules. Participants at ABS East repeatedly referred to their fears over these changes, pointing out that the new rules will increase the cost of securitization, making this funding path less attractive. Regulators, for their part, say more disclosure is necessary to increase the comfort level of investors when they buy these bonds.

"Our industry is not going to see big issuance the way it used to," said one fixed income portfolio manager who declined to be named. Auto-sector issuers all seem to be "content" issuing one bond per quarter, he added, noting these are often "one loan, one lease and one floorplan" backed securities.

For a lot of credit card issuers, there are other cheaper ways of financing, like deposits, he said.

Consumers have cut back on spending as unemployment levels remain stubbornly high. With fewer loans, there is less raw material to create these asset-backed bonds.

"No one is carrying around 10 credit cards anymore," said Jim Harrington, an ABS investor in New York. "People have lowered their expectations."

The issuance calendar is also slowing down as the end of the year is approaching, Harrington pointed out.

"There will still be a couple of deals in what's left of October and a few in November and then people will have discussions about how things look and where we go from here," he said. "December could be a quiet month."

-By Anusha Shrivastava, Dow Jones Newswires; 212-416-2227;


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