10/12/2012

Automaker Deals Suddenly in Short Supply

Honda, Hyundai and Toyota are signaling that they won’t issue auto-loan securities again this year.

The automakers’ plans took shape in recent weeks, as each company separately determined that its most recent securitization would supply enough funding to last into 2013. And in deciding to sit out of the market, the companies have added a wrinkle to issuance forecasts: While industry participants are sticking with recent predictions that sales of prime-quality auto-loan paper will remain healthy through yearend, they are tempering their volume expectations to account for an absence of large issuers.

In the near term, the supply of fresh bonds backed by prime-quality auto loans is likely to taper off ahead of Information Management Network’s “ABS East” conference in Miami. After the Oct. 21-23 event, the expectation is that smaller issuers will drive dealflow.

A similar scenario is playing out among deals backed by car leases and subprime loans. For example, Toyota had been planning to complete its first-ever lease securitization by yearend but has pushed back the offering into 2013. “I don’t see much of a calendar for auto deals in November and December,” one underwriting professional said. “You might see a couple of deals later this month after the conference, but I talked to a lot of issuers and they’re done for the year.”

Honda and Hyundai priced their latest deals on Oct. 11, with J.P. Morgan placing $1 billion of bonds on Honda’s behalf and Bank of America leading a $1.5 billion issue for Hyundai (see Initial Pricings on Page 10). Toyota was last in the market on Sept. 18, when it sold $624.5 million of securities with Citigroup running the books.

Honda has completed three prime-loan deals totaling $4.7 billion this year, following three issues for $3.9 billion in 2011. Hyundai has weighed in with three transactions for $4.3 billion, up from three offerings for $2.9 billion in 2011. Toyota, despite its massive sales figures, hasn’t been as active as its rivals this year. This year it has tapped the market twice for $1.6 billion, compared to two deals for $1.5 billion last year.

Among other large issuers of prime auto-loan paper, it’s possible that Ally Bank or Ford could come out with a late-2012 deal. But it wouldn’t be surprising to see them wait for next year either. Ford, for example, may not need the money after raising increasing amounts of capital via sales of unsecured corporate bonds in recent months.

That said, demand for car-loan paper remains strong. And should new-car sales top estimates, issuers wouldn’t hesitate to seek funding via asset-backed bond sales — especially after the presidential election. “If demand increases after the election and auto sales somehow near 15 million, then you might see another deal. Otherwise they’re done for the year,” the underwriter said, referring to current expectations that annual vehicle sales in the U.S. will total about 14.5 million.

The anticipated late-year slowdown in issuance follows months of soaring activity. So far this year, issuers have placed $70.5 billion of bonds backed by prime car loans, subprime accounts and leases in the U.S. — up from $45 billion in all of 2011, according to Asset-Backed Alert’s ABS Database. Indeed, this year has been the busiest for the sector since before the credit crisis, thanks in part to strong asset performance.

“The market has been good all year,” one researcher said. “Spreads are tight, so I’m not surprised that some of their funding needs have already been taken care of and they’re calling it quits.”

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