Skip to main content
Publish date:

Asset Backed Security Debt Sales Hit New Record At Fastest Pace

There's a frenzy going one. Please thank the Fed.
Author:
ABS Frenzy

Asset Backed Securities Frenzy

Remember 2008? Bankers are repackaging everything from fast food franchises to fitness-center fees into bonds at the fastest clip since the global financial crisis. This year’s sales of U.S. asset-backed securities have already surpassed $300 billion, and more is expected by year-end.

The above snip via email from Bloomberg.

LIBOR Transition, Who Cares?

Bloomberg reports CLOs Put Pedal to the Metal With Libor Transition Hazard Looming

The record-setting pace of collateralized loan obligation sales is poised to kick into high gear as issuers get ahead of next year’s potentially messy transition to a new benchmark.

The London interbank offered rate must be retired for new leveraged loans -- the building blocks of CLOs -- by Dec. 31. That’s expected to cause volatility in 2022 as CLOs seek new benchmarks for the loans they repackage and bonds they sell for funding. 

Golden Age of CLOs

Allegedly this is the Golden Period for CLO Equity.

New issuance surpassed 2018’s record of $130.4 billion, and may not slow down in the coming months.

RECOMMENDED ARTICLES

We are in a golden period for CLO equity, and demand for paper remains strong,” said Thomas Majewski, managing partner at Eagle Point Credit Management, which buys CLO equity.  

CLOs have drawn some scrutiny from regulators and ratings firms, who had expressed concern that the quality of loans getting bundled into the securities had deteriorated.

But loan defaults have ended up being minimal, in part because of Federal Reserve and government rescue programs. Only a few low-ranked portions of U.S. CLOs are expected to default coming out of the 2020 economic downturn, S&P Global Ratings analysts said in a study released last month.

“There’s continued acceptance of CLOs,” said Shiloh Bates, managing director at Flat Rock Global, a CLO equity investor. “They have gone from a backwater of finance to a more mainstream asset class.” 

Thank You Fed!

Thank you Fed for turning backwater sludge into mainstream gold.  

Meanwhile, please keep telling us how you are helping reduce income inequality while fighting inflation.

Thanks for Tuning In!

Like these reports? If so, please Subscribe to MishTalk Email Alerts.

Subscribers get an email alert of each post as they happen.

Read the ones you like and you can unsubscribe at any time.

If you have subscribed and do not get email alerts, please check your spam folder.

Mish