The Asset-Backed Market in 1999 and the Outlook for 2000 ...
March 2000
The Asset-Backed Market in 1999 and the Outlook for 2000
years. This growth has been driven in
large part by strong investor demand and the
variety of structures available to meet issuers¡¯
financing needs. The ABS market is expected
to continue to grow, with issuance projected
to total an estimated $222.5 billion in 2000,
a 13.1% increase over the $196.8 billion
reported in 1999. However, the growth has
not been limited to just the domestic market,
but has also spread to the international arena
as well. Changing market structures and
regulation have spurred securitization in
foreign markets. International ABS issuance
totaled $47.3 billion in 1999, up 71.2% from
the $27.7 billion issued in 1998.
Total ABS Issuance
1995-2000P
200
150
100
50
0
¡¯95
¡¯96
¡¯97
¡¯98
¡¯99
¡¯00P
P - Association projections
Strength in the auto loan, credit card and
manufactured housing sectors helped contribute to the increase in issuance, even
though the home equity and student loan
sectors posted issuance declines of 15.9% and
7.1% over year-earlier totals, respectively.
Auto loan issuance was robust last year, rising
23.9%, to $43.3 billion. The credit card and
manufactured housing sectors also posted
issuance gains, with volume totaling $38.0
billion and $12.0 billion, respectively, in 1999.
And although the home equity sector recorded
a decline in issuance last year, it still accounted
for over one-third of the total issuance, representing $68.6 billion. The student loan sector
also reported a decline in issuance, totaling
$8.8 billion in 1999.
New issue volume in the ABS market has
continued to increase over the past several
Source: Thomson Financial Securities Data
250 $ Billions
Michael Decker
Vice President
Research and
Policy Analysis
Stephanie K. Mah
Director
Market Statistics
Lori Trawinski
Director
Research
Charlotte L. Needham
Research Analyst
Outstanding Supply Reaches $744 Billion
According to Association estimates, the outstanding supply of ABS continued to increase
in 1999, with the outstanding level reaching
$743.5 billion at the end of last year, a 17.5%
jump over the $632.6 billion outstanding
at the end of 1998. Outstanding credit card
debt represented the bulk of ABS supply,
accounting for 43.1% of the total. Credit
continued on page 4
ABS Outstanding by Major Types of Credit
As of December 31, 1999*
Credit Card
Receivables
$320 B
Home Equity
$142 B
43.1%
43.1%
13.4%
Manufactured
Asia Housing
76.9%
19.1%
$40 B $3.3 B
6.8%
Other
$130 B
2.9% Auto Loans
11.7%
$87 B
17.5%
3.2%
Total: $744 Billion
Student
Loans
$24 B
5.4%
Manufactured
Housing
$40 B
*The Bond Market Association estimates
Sources: The Bond Market Association, Federal Reserve
Issuance in the public asset-backed securities
(ABS) market increased marginally in 1999,
with volume totaling $196.8 billion, a 0.6%
rise over the $195.7 billion issued in 1998.
ABS issuance through the first half of 1999
was relatively flat, but strong third-quarter
volume helped propel overall issuance gains
despite a lackluster fourth quarter showing.
Fourth-quarter issuance totals were off yearearlier levels due to concerns about Y2K and
possible interest rate hikes.
40 Broad Street
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202.434.8400
Fax 202.434.8456
? 2000
March 2000
Credit card issuance was up marginally
in 1999, with volume totaling $38.0
Credit Card Receivable ABS Issuance
1995-2000P
40
30
20
10
0
¡¯95
¡¯96
¡¯97
¡¯98
¡¯99
¡¯00P
Source: Thomson Financial Securities Data
50 $ Billions
billion, as compared to the $36.9 billion
issued in 1998. Issuance has been
relatively flat over the past three years,
as concerns over consumer credit have
plagued the market. However, credit
card issuance is expected to bounce
back this year as sentiment about
consumer credit issues improves and
investors and issuers alike return to
the market. Credit card ABS issuance
is projected to total $47.5 billion in
2000, a 25.0% jump over 1999¡¯s total.
International ABS Market
Driven by European
Securitizations
International ABS Issuance
1999
Europe(1)
$36.3 B
76.6%
13.5%
6.9%
Latin
America &
Caribbean
$6.4 B
Asia
$3.3 B
3.0%
Canada
$1.4 B
P - Association projections
Total: $47.3 Billion
Equipment Lease Volume Remains Strong
(1) Excludes German Pfandbriefe deals
Equipment lease issuance remained
strong in 1999, totaling $9.0 billion, off
The international ABS market has
experienced dramatic growth rates
in recent years as market structures
have become more standardized
and market regulation has become
more accommodating to securitization as a financing tool. This
growth has been primarily in
Europe, with securitizations in this
region dominating international
ABS activity and accounting for
over three-quarters of the total
volume. European ABS issuance,
which excludes the German
Pfandbriefe transactions, totaled
$36.3 billion in 1999, a 165.0%
increase over the $13.7 billion
issued in 1998.
In contrast, ABS issuance in
Asia actually declined last year,
totaling $3.3 billion, down from
$4.6 billion in 1998. Activity in the
Latin American and Caribbean
region also declined, with issuance
totaling $6.4 billion in 1999, a
28.7% drop from the $9.0 billion
issued in the previous year.
However, issuance in Canada
increased more than threefold,
totaling $1.4 billion in 1999, as
compared to the $400.0 million
sold in 1998.
Equipment Lease ABS Issuance
1995-2000P
8
6
4
2
0
¡¯95
¡¯96
¡¯97
¡¯98
¡¯99
¡¯00P
Source: Thomson Financial Securities Data
10 $ Billions
P - Association projections
just 4.2% from the $9.3 billion issued
in 1998. Last year¡¯s issuance was
down slightly from 1998¡¯s record level,
which included the refinancing of a
multibillion-dollar deal issued by the
GPA Group, an Irish aircraft leasing
company.
Helping to contribute to last year¡¯s
gains were the mainstays of the sector,
Newport Equipment and Case Equipment, both of which came to market
with billion-dollar deals. Equipment
lease issuance is expected to increase
11.0% in 2000, totaling an estimated
$9.9 billion.
Student Loan Issuance Declines 7.1%
The student loan sector continued to
decline in 1999, with issuance falling by
Student Loan ABS Issuance
1995-2000P
15
10
5
0
¡¯95
¡¯96
¡¯97
¡¯98
¡¯99
¡¯00P
Source: Thomson Financial Securities Data
20 $ Billions
7.1%, to $8.8 billion, as compared to the
$9.5 billion sold in 1998. Following its
absence in the second half of 1998,
Sallie Mae also refrained from issuing a
single ABS transaction during the first
five months of 1999. In the summer of
last year, Sallie Mae finally returned to
the market. However, the deal sizes were
smaller than those done in the past,
which typically averaged from two to
three billion. The student loan sector is
expected to bounce back in 2000, with
volume projected to total $9.5 billion,
an 8.5% jump over 1999¡¯s total.
P - Association projections
2
Research
Source: Capital DATA
Credit Card Volume Up Slightly
March 2000
Auto Loan Sector Revs Up
A number of securities backed by
auto leases came to fruition this year,
totaling $4.2 billion, following only a
handful of issues coming to market
over the past several years. American
Honda Motor Company accounted
for nearly three-quarters of the total
auto lease issuance in 1999, with volume reaching $3.1 billion.
The auto lease sector is poised
to become a major asset class, as
consumers are increasingly using
leases to acquire vehicles and as
issuers become more comfortable
securitizing these cash flows. The
auto sector is expected to post
strong issuance gains this year,
Auto Loan Receivable
ABS Issuance
1995-2000P
50 $ Billions
40
30
20
10
0
¡¯95
¡¯96
¡¯97
¡¯98
¡¯99
¡¯00P
Source: Thomson Financial Securities Data
The auto loan sector rebounded in
1999, with issuance totaling $43.3
billion, representing a 23.9% increase
over the $34.9 billion reported in
1998. Robust auto sales resulted in
more loan product being available
for securitization.
In particular, originators associated with the Big Three auto manufacturers continued to dominate the
market, representing over 41.3% of
the total volume. Ford Motor
Company and Chrysler Corporation
both came to market with over $7.0
billion each in securitizations last
year, while General Motors Company
issued $3.1 billion in the period.
P - Association projections
with volume totaling an estimated
$48.3 billion, an 11.6% increase over
1999¡¯s level.
Home Equity Sector Dominance Loosens
$64.4 billion issued in 1998 and 1997,
respectively. Despite the decline in
volume, the home equity sector still
accounted for the majority of total
issuance last year, representing 34.9%
market share, although down significantly from the 41.7% proportion
reported in 1998. Home equity
issuance is expected to bounce back in
2000 as credits improve, with volume
estimated to total $75.5 billion this
year, a 10.0% increase over last year¡¯s
total.
Home Equity Loan ABS Issuance
1995-2000P
80 $ Billions
60
40
20
0
¡¯95
¡¯96
¡¯97
¡¯98
¡¯99
¡¯00P
Source: Thomson Financial Securities Data
Issuance in the home equity sector
declined 15.9%, to $68.6 billion, in
1999, down from the $81.6 billion
sold in 1998. The decline was not
unexpected, however, in view of the
record volume that had been reported
in recent years. In addition, several
major issuers exited the marketplace
as consolidation continued and companies utilized other financing tools.
Home equity issuance had dominated the ABS market over the last
couple of years, with $81.6 billion and
P - Association projections
Manufactured Housing Issuance Jumps 6.6%
homes, which are prefabricated singlefamily houses.
The strong housing market combined with attractive financing terms
resulted in an increase in manufactured housing loans available for
securitization. This growth is expected
to continue into 2000, with issuance
totaling $13.6 billion, a 14.0%
increase over the previous year¡¯s total.
Manufactured Housing Loan
ABS Issuance
1995-2000P
14 $ Billions
12
10
8
6
4
2
0
¡¯95
¡¯96
¡¯97
¡¯98
¡¯99
¡¯00P
P - Association projections
Research
3
Source: Thomson Financial Securities Data
ABS issuance in the manufactured
housing sector rose by 6.6% in 1999,
with volume totaling $12.0 billion,
up from the $11.2 billion issued
in 1998.
Despite credit-related issues and
industry consolidation pressures that
plagued the market in 1999, the sector
still posted robust gains, driven by
strong demand for manufactured
March 2000
1999
130 Basis Points
120
90
80
70
60
50
1Q
2Q
3Q
4Q
Source: Chase Securities Inc.
7-year
5-year
3-year
110
100
(1)Spreads
based on off-the-run Treasuries of
comparable maturities
Home Equity Loan ABS Spreads(1)
1999
200 Basis Points
160
140
120
100
80
60
1Q
2Q
3Q
4Q
Source: Chase Securities Inc.
7-year
5-year
3-year
180
During the first half of 1999, ABS-toAuto Loan Pass-Thru ABS Spreads(1)
Treasury spreads tightened as a result of
1999
easing liquidity concerns and reduced
new issue supply in the market. Spreads 120 Basis Points
110
were just coming off their highs in the lat100
ter part of 1998, so the tightening of 90
spreads in the beginning of 1999 was not 80
unexpected. The most dramatic tighten- 70
ing occurred in the home equity and 60
manufactured housing sectors, with 50
spreads on 7-year home equity loan and 40
1Q
2Q
3Q
4Q
7-year manufactured housing loan transactions bottoming out at 130 basis points
(1)Spreads based on off-the-run Treasuries of
and 110 basis points, respectively, in the
comparable maturities
middle of May. However, spreads began to
widen around the third quarter of last
Maunfactured Housing Loan
year, as new issue supply was heavy during
ABS Spreads(1)
the period, with spread levels surpassing
1999
those witnessed at the beginning of 1999.
Basis Points
Spreads on 7-year home equity loan and 180
7-year
7-year manufactured housing loan trans- 160
5-year
3-year
actions topped out at 190 basis points and 140
120
170 basis points, respectively, during
August of last year. Subsequently, during 100
the fourth quarter, spreads began to tight- 80
en considerably, with declines of 40 to 50 60
basis points across the home equity and 40
1Q
2Q
3Q
4Q
manufactured housing sectors.
(1)Spreads
based on off-the-run Treasuries of
comparable maturities
(1)Spreads
based on off-the-run Treasuries of
comparable maturities
Stranded Cost Sector Falls Short of Breaking Double-Digits
Issuance of securities backed by
revenues derived from stranded costs,
otherwise known as utility receivables,
totaled $7.7 billion in 1999, nearly
double the $4.3 billion reported in
the prior year. While only a few deals
actually came to market last year,
the total dollar volume illustrates how
the presence of just one or two issuers
can dramatically affect issuance in the
sector. For example, four issuers,
PECO Energy, Boston Edison,
Pennsylvania Power & Light and
West-Penn Power, sold stranded
cost ABS in 1999, with volume totaling $7.7 billion. However, the passage
of legislation aimed at deregulating
the electric utility markets in many
states still remains uncertain. And
even with the legislation in place,
some states have decided to remain
on the sidelines. For this year, utility
receivable securitizations are expected
to be issued by New Jersey, Texas and
possibly Illinois. Stranded cost ABS
issuance is expected to total $10.1 billion in 2000, a 30.0% increase over last
year¡¯s total.
outstanding supply at the end of
last year, a 17.6% increase over the
$120.7 billion year-earlier level. The
outstanding level of auto loan ABS
totaled an estimated $87.0 billion at the
end of last year, a 19.2% jump over
1998¡¯s year-end level of $73.0
billion. Manufactured housing debt
represented an estimated $40.2 billion
of the total supply at year-end 1999,
a 16.9% increase over the $34.4 billion
level outstanding at the end of 1998.
Outstanding Supply
continued from page 1
card ABS supply totaled an estimated
$320.4 billion at year-end 1999, up
from the $272.3 billion reported at
year-end 1998. The home equity sector
continued to grow, representing an
estimated $141.9 billion of the
4
Research
Source: Chase Securities Inc.
Fixed Rate Credit Card ABS Spreads(1)
Source: Chase Securities Inc.
Roller-Coaster Ride for Spreads in 1999
................
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