Primary

• Primary issuance in ABS totaled over $17B, continuing the recovery to more normal run rates and roughly matching the monthly average over the past two months. Issuance in containers was particularly high with nearly all the issuers in the space coming to the market to lock in the low rates. Close to $3.2B in container deals were issued in August, almost surpassing 2013’s total record high of $3.25B. The elevated supply was met with even stronger demand allowing the transactions to effortlessly clear at +175. The strong demand wasn’t limited to containers as investor appetite for deals allowed many transactions issued in the month to upsize and/or price through guidance.
• A few highlights in the month include:
  • Avis priced a $650 mm car rental deal 25-35 basis points (bps) through the tight end of guidance on strong demand. The 5 yr AA-rated seniors cleared at 175/n, while the two subordinate tranches priced at 270/n and 400/n
  • OneMain, the originator of subprime consumer loans, upsized its transaction by $500 mm to $1B and priced the four tranches at 135/n, 175/n, 230/n, and 300/n, all through price guidance. The structure included a 5 yr revolving period with amortization to occur afterwards
  • Sallie Mae launched a three-tranche private student loan deal with the 4 yr AAArated fixed rate tranche pricing at 110/n and the floating rate at 110 dm, while the subordinate priced at 230/n
  • Wyndham brought a $575 mm timeshare deal to the market that was well received by investors. The 3 yr senior bond priced at 115/n after being guided in the +140-150 range. The subordinate bonds saw even greater demand and priced at 215/n, 335/n, and 650/n
  • Triton issued a $1.4B container ABS deal, the largest on record. This was Triton’s second transaction of the month after previously pricing a $300 mm deal the week prior. The 5 yr senior tranche priced at 175/n and the subordinate at 340/n

Secondary

• Secondary trading slowed down in August with TRACE reporting just $18B in volume, down 20% from the previous month. Spreads, however, continued to move in tighter as better demand in the backdrop of lighter supply, helped carry on a move that already had a bullish tone. Even sectors that had lagged the broader move in ABS, such as FFELP, saw more activity and interest, which led to tighter levels – FFELP spreads were better by 30-40 bps, trading at roughly 115 dm. Timeshares, despite the negative impact due to Covid-19, was another sector that caught investor’s attention with bonds trading around +115, better from the +150 level seen in July. Cards and prime autos tightened another 5-10 bps, putting them right at the tights of the year.

Market News

• Total household debt fell for the first time since 2014, according to the Household Debt and Credit report from the Federal Reserve Bank of NY. The decline was led by a $76B drop in credit card balances, reflecting the drop off in consumer spending and also marked the largest decline in the history of the report. Non-housing debt balances, which includes credit cards, auto loans, student loans, and other debts, dropped by $86B, also the largest drop in history
• Moody’s placed Hertz ABS on review for upgrade, reversing the downgrade review the agency had placed on Hertz back in May. In changing the direction, the rating agency cited the agreement Hertz made to make lease payments and vehicle disposition proceeds to the ABS trust along with the strength of the used car market
• Fitch revised the rating outlook on FFELP ABS to negative following the action it took on placing the outlook of the U.S. sovereign rating to negative. In placing FFELP on negative outlook, the rating agency cited the support FFELP gets from the federal government and thus moving the outlook in tandem with the U.S. sovereign outlook

Spreads

Source: BofA Merrill Lynch Global Research