(Bloomberg)—Bankers are repackaging everything from fast food franchises to fitness-center fees into bonds at the fastest clip since the global financial crisis as investors chase yield and inflation protection.
This year’s sales of U.S. asset-backed securities have already surpassed $300 billion, according to data compiled by Bloomberg -- and more is expected by year-end. Post-crisis issuance records have also been set in private-label commercial mortgage bonds and collateralized loan obligations, which are also seen accelerating.
“Solar, consumer loans, container lease and whole business transactions to some degree all offer attractive yields and spreads,” said Dave Goodson, head of securitized credit at Voya Investment Management. “These so-called esoteric sectors remain well supported with plenty of money to invest.”
On Monday, Self Esteem Brands, a franchiser of businesses including its flagship gyms Anytime Fitness, priced a $505 million ABS that was backed by franchise agreements, royalties and fees. In whole business securitizations like these, companies mortgage virtually all their assets.
Last month, fried chicken restaurant chain Church’s Chicken sold a $250 million securitization backed by franchise and royalty collateral. Golden Pear Funding recently securitized litigation fees related to financial settlements on everything from personal injury cases to wrongful convictions. And Oasis Financial priced a similar deal linked to payments on medical liens.
The ABS sales deluge has been so intense that it’s started to weigh on pricing, especially for bonds backed by subprime auto-loan and student-loan payments. Despite this, investors sound bullish, given a positive consumer-credit outlook, boosted by pandemic-era stimulus checks.
“There is robust underlying recovery values for everything from cars to homes. The underlying collateral of a lot of ABS does well with inflation,” said Daniel Lucey, a senior portfolio manager who invests in securitized credit at SLC Management. “In a low-yield, high-inflation environment, securitized debt is attractive versus short-term corporate debt on both a spread and yield basis.”
Goldman Sachs last week told investors to rotate out of corporate bonds and into ABS and other securitized debt, as inflation boosts wages and increases the value of cars and homes. Its strategists said valuations look better in securitized bonds than in corporate bonds on a historical basis.
--With assistance from Charles Williams.
© 2021 Bloomberg L.P.