Lloyds Banking Group
deal raises hopes UK retail motor paper will be looked upon
favourably by capital markets, reports Fred
Crawley.
Go deeper with GlobalData
Lloyds
Banking Group (LBG) has sold bonds backed by Black Horse Motor
Finance loans, in the latest sign that UK retail motor paper may be
looked upon favourably by capital markets.
The bank put together 130,000
hire purchase contracts, worth £768m, to back its bonds, and went
on to sell £250m of sterling-denominated bonds and €300m of
euro-denominated bonds at par.
The bonds pay coupons of 110
basis points over one-month sterling and euro Libor, respectively,
and were issued by a vehicle called CARS 20011-1.
Both tranches have a legal
final maturity of September 2017.
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By GlobalDataIn addition, an unrated
tranche of £177.93m is being retained. Lloyds Bank Corporate
Markets and WestLB were joint-lead managers of the deal.
While the Black Horse bonds
are backed by relatively mature loans, and therefore represent a
relatively short-term investment, their sale shows that markets
feel relatively confident about the credit strength of consumer
motor borrowing.
Long-term view not
needed
However, a former executive
at LBG pointed out that although the bonds offered good seasoning
(that is, all the backing loans are well past the default-heavy
early stages and therefore a good risk), their anticipated life (as
opposed to their “legal final” date) did not require investors to
take a long-term view on UK economy.
It may also be the case that
the senior tranche being split into sterling and euros made the
deal more attractive to European investors, since the tranche in
euros would be usable as collateral to borrow from the European
Central Bank.
Although the purpose of the
Black Horse deal has not been specified, the outcome shows that
there still appears to be a good deal of liquidity in the
marketplace.
Meanwhile, FirstRand, the
South African owner of Carlyle Finance, has priced £246m worth of
AAA-rated bonds backed by Carlyle paper, paying 185 basis points
over one-month sterling Libor.
The bonds have a weighted
average life of 0.82 years and are being issued by a vehicle called
Turbo Finance.
A further £94m of lower-rated
and unrated notes are being retained, giving similar credit
enhancement to the Lloyds deal. BNP Paribas SA and UBS AG acted as
lead managers in the sale.
Bonds backed by UK consumer
motor loans have not been traded on the capital markets for many
years – the fact that both FirstRand and LBG have made such moves
within a short space of time begs the question of who will be next
to issue.
These are also the first
non-German auto asset-based security (ABSs) issues successfully
placed with investors since the financial crisis and the collapse
of Lehman Brothers.
German auto-backed notes are
traditionally one of the most resilient segments of the European
securitisation market, because investors like the collateral and
the commitment that German auto lenders, such as Volkswagen Bank,
have shown to their securitisation programmes.
However, it is worth noting
that all German ABS issues have been for notes backed with loans to
businesses. In contrast, the Black Horse and FirstRand issues are
backed by consumer loans.
There have also been many
issues in the US market recently, with securities backed by auto
loans and inventory adding up to about $8bn (£5bn) so far this
year, encouraged by huge federal-driven incentives.
Toyota joins fray in
US
Toyota Motor Corporation is
the latest issuer to join the ranks, with a $1bn bond backed by
prime retail auto loans.
Other issuers this year
include Ford with a $1.1bn bond, Ally Financial with a $1.25bn
deal, Hyundai Motor Company with a $921m bond, and AmeriCredit with
an $800m security.
Even last year, the auto
sector saw robust issuance. Bonds valued at $58bn were sold,
comprising 60% of all new asset-backed securities, according to
data from Citigroup.
In 2009, auto-backed notes
accounted for about 42%, or $58bn, of $137bn in asset-backed bonds
sold.
A source familiar with the
European ABS market told Motor Finance: “The reason there
is an opportunity for UK auto ABS issues now appears to be that
investors want some diversity.”
“We have seen this in some other deals, for example, a
bond issue backed by credit card receivables from
Barclays.”
