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December 02, 2016  

Reg AB Sways Timing of Huntington Deal

Huntington National Bank’s latest auto-loan securitization offers a glimpse into how a little-discussed component of the SEC’s new Regulation AB rules could affect the timing of deals during holiday weeks.

Underwriters Bank of America, Credit Suisse and J.P. Morgan released a preliminary prospectus for the $1.5 billion transaction on Nov. 21. Under Reg AB’s Rule 424(h), that paperwork must be distributed at least three business days before any bonds are sold.

With the market shutting down for Thanksgiving and Black Friday, the upshot was that Huntington had to wait until Nov. 28 to price its offering — a date the underwriters already had agreed upon when circulating the “red.”

In the meantime, industry participants were scratching their heads over why the deal hadn’t already priced. They pointed to the fact that BofA, Credit Suisse and J.P. Morgan already lined up buyers for most of the bonds during an informal marketing period that came before the prospectus was released, with some theorizing the transaction had run into some sort of trouble.

Indeed, it has been common until now for issuers of mainstream asset classes to distribute prospectuses just a day or two before completing their deals. Moreover, issuers have been reluctant to leave offerings in the market over three- or four-day weekends, given the risk that bond buyers might lose patience and cancel their orders.

Even some of those involved in Huntington’s issue apparently missed the message that Rule 424(h) had affected the company’s timing. “We were dumbfounded,” one investor in the deal said. “We couldn’t believe they would hold off on pricing until after Thanksgiving and face that holiday risk.”

As it turns out, demand was ample, with no investors dropping out. Consider that the issue included a $450 million class of two-year bonds with triple-A ratings that priced at 28 bp over swaps, 2 bp tighter than the underwriters suggested (see Initial Pricings on Page 10).

The updated Reg AB rules, known as Reg AB 2, took effect Nov. 23. In a twist, Huntington didn’t have to comply with a higher-profile set of disclosure requirements under the regulation because its prospectus came out before that date. But it still had to abide by Rule 424(h) because the transaction’s pricing straddled the phase-in point.

Credit Suisse served as structuring agent for the offering. The issue was Huntington’s first since it priced a $750 million deal in June 2015, according to Asset-Backed Alert’s ABS Database. Before that, it hadn’t been in the market since 2012.

The Columbus, Ohio, bank’s return as an issuer appears tied in part to funding needs that arose following its August takeover of FirstMerit Bank.