Primary

The new issue market was light during first week of July as is typical with folks taking time to ease back after the Fourth of July holiday but nothing has felt normal over past few months. Once market participants were back in their seats, new issue ABS volume quickly ramped up and really never let up. Spreads ratcheted tighter with each new deal and demand for ABS in primary appeared to be insatiable where it was commonplace to see deals more than ten times oversubscribed, illustrating the high level of liquidity available. July ended with $16.5 bn pricing throughout the month, besting the $15.84 bn issued July-2019 but 2020’s year-to-date total of $97 bn is significantly behind the $138 bn issued at the same point last year, according to JP Morgan research. Year to date through July, auto ABS accounted for 64% followed by specialized ABS 14%, student loans 9% and credit card at 3%. Among the deals of note were:

• MVW Owner Trust (MVWOT – Marriott Ownership Resorts) priced a $375 mn timeshare loan ABS transaction on July 13 at 150 basis points (bps) over swaps for the 3.39 year, AAA rated bonds to 700 bps over swaps for the 3.39 year BB rated bonds. The senior AAA bond priced 100 bps tighter than Hilton Grand Vacations Trust (HGVT) senior, AAA bond just a month earlier. The initial loan pool had a weighted average coupon rate of 12.23%, a weighted average FICO score of 713, average loan balance of $9,074, and a weighted average remaining term of 139 months.
• Santander Drive Auto Receivables Trust (SDART) priced a $1.40 bn subprime auto loan ABS transaction on July 14 at 35 bps over swaps for the 0.65 year AAA rated bonds to 200 bps over swaps for the 3.44 year BBB rated bonds. Santander upsized the deal by $300 mn and was oversubscribed on strong demand where the BBB bonds priced 300 bps tighter than their previous deal in April. The initial loan pool had a weighted average APR of approximately 14.79%, a 39%/61% split of new to used cars, a weighted average FICO score of 607, and a weighted average remaining term of 65 months.
• Tesla Auto Lease Trust (TESLA) priced a $709 mn prime auto lease ABS transaction on July 30 from 35 bps over swaps for the 1.10 year AAA rated bonds to 450 bps over swaps for the 2.71 year BB rated bonds. The deal marked the fourth lease ABS deal from the electric vehicle maker. The initial lease pool had a weighted average FICO score of 791, a weighted average remaining term of 30 months, and 100% new vehicles distributed between three models; 50% Model 3, 27% Model X, and 23% Model S.

Secondary

Two overarching themes emerged in secondary ABS markets in July. Spreads for high quality, short, senior consumer ABS remained strong and continued to grind tighter having long retraced all its spread widening experienced in March. Certain other specialized ABS subsectors that had previously lagged like floorplan, timeshare, whole business, and subprime auto loan subordinate ABS also saw meaningful improvement in spreads and demand. Despite heavy new issue volume and high subscription levels, secondary trading volume saw spikes with some days clocking over $1.6 bn in trading volume in July according to TRACE. Senior floorplan ABS gapped higher in July where senior Ford floorplan ABS tightened 20 bps from high 90s bps over swaps to 70s bps in a single day and the same phenomenon occurred with senior Nissan floorplan ABS. Finally, as part of a larger $80 mm rental car ABS secondary auction, a $53 mm, BB- rated block of subordinate Hertz rental car ABS traded in low 99 dollar price at the end of the month marking a two-point improvement from where the bond was trading just a few weeks earlier.

Market News

On July 21, Hertz announced it came to an agreement with Hertz ABS investors, who actually own the fleet of rental cars the company leases to run its business. Under the settlement, Hertz agreed to send $650 million to the securitization in six equal installments beginning in July and ending in December 2020. The rental car company also agreed to sell or dispose at least 182,521 vehicles which would leave the ABS trust with about 310,000 vehicles after the sales.

Bank of America Merrill Lynch Credit Card Index

Source: Bank of America Merrill Lynch Global Research

Credit Card ABS Performance. Bank of America Merrill Lynch’s credit card ABS index showed mixed results across most metrics in July. Defaults and delinquencies fell 7 bps and 8 bps on a year-over-year basis, respectively, with defaults higher for 22% of trusts and delinquencies higher for 17% of trusts, month over month. The index’s current default rate of 2.20% is only 7 bps higher than February’s 2.13%. Monthly payment rate and three-month excess spread fell 101 bps and 102 bps, respectively, on a year-over-year basis. Monthly payment rates were higher for 30% of trusts and three-month excess spreads were higher for 52% of trusts, month over month.

Spreads