Credit Card and
Auto Loan Collateral Lead ABS Market in 2000
2001/01/08
Analysts: |
Bonnie
Lee Tillen, New York ; Paul L Kelly, New York; Joseph F Sheridan,
New York |
NEW
YORK (Standard & Poor's CreditWire)--ABS experienced a strong year
in 2000, with the dollar volume of deals up about 20% over 1999, and with
the number of issues running at about the three-year average. The activity
was led by credit card and auto loan collateral, followed by a solid showing
for equipment leases and student loans. The fastest growing category of
all, however, was CBO/CLOs, which accounted for 8% of all the new ratings
in 2000.
In 2001, the ABS
market will have to contend with a slowing economy and perhaps even a
recession. Interest rates have already come down, but only as a reaction
to weaker retail sales and activity. Corporate debt remains high and burdensome,
particularly as revenue and profit growth are slowing. Auto companies
will have to contend with slowing sales, high inventories, and residual
losses, while credit card ABS may see a rise in delinquencies and charge-offs
as unemployment rises.
Issuance is likely
to stay strong as companies continue to move to
securitize and monetize assets. The big question, however, will be the
capability of the investor to absorb what is likely to be a rising tide
of
supply in a less friendly environment.
A comparison of year-to-date
Nov. 30 public market volume relative to the same period in 1999 shows
significant growth in autos, credit cards, and student loans. Auto issuance
rose from about $43 billion to just over $61 billion, credit card issuance
climbed from $38 billion to $48 billion, and student loan issuance jumped
from $5.7 billion to $12.4 billion. Together, the three sectors of the
market grew by 39%.
In the last year,
ratings were most affected by corporate credit quality last year, a result
of rising corporate debt and falling equity markets. Deteriorating credit
quality was the underlying reason for the vast
majority of Standard & Poor's downgrades through all of 2000. In
contrast, improving collateral performance was behind nearly all of the
upgrades.
The auto ABS sector
had a strong year but it was not without turbulence. Problems with residual
losses cast a shadow over the auto lease sector and public ABS new issue
volume dropped $4.2 billion in the first 11 months of 1999 to about $2.5
billion for the same period in 2000. Bridgestone/Firestone Inc.'s tire
problems made securitization a more attractive funding solution for Ford
Motor Co. Repeating its performance of 1999, Ford Motor Credit Co. was
again the largest issuer in 2000. Chrysler Financial Co. L.L.C. executed
its first transactions under the DaimlerChrysler name, reflecting the
1998 merger of Daimler Benz AG and Chrysler Corp. Surprising growth also
came from the private sector with Ford Motor Credit Co. and General Motors
Acceptance Corp. selling LIBOR-based variable pay term notes (VPTNs) directly
to their respective commercial paper conduits.
A strong job market
and low unemployment bolstered an already solid
consumer and kept bank credit card charge-off rates from barely moving
in 2000, according to Standard & Poor's Credit Card Quality Indexes.
The credit card ABS markets also witnessed the return of Citibank N.A.
after a 10-month absence. Citibank's re-entrance with its much anticipated
and innovative note issuance program raised expectations for a deeper,
more liquid credit card ABS market going forward. The new program allows
Citibank to issue subordinate notes without having to issue senior notes
at the same time. It is believed that the note issuance and expansion
of the investor base will attract non traditional credit card ABS investors
due to the attractiveness of the yields on the subordinated notes.
Manufactured housing
hit some rough spots in 2000 and was a source of 90 downgrades over the
course of the year. Deteriorating credit quality was the reason given
by Standard & Poor's for most of these ratings actions. Ironically,
another factor might have been a strong consumer, who opted for more expensive
traditional housing, leaving the typically lower cost, manufactured home
industry hurting from a decline in business and revenues, Standard &
Poor's said.
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