IFR 03.7.2020

International Financing Review March 7 2020^47

STRUCTURED FINANCE

remains unclear where the new deal might

land.

“The timing is kind of unfortunate. It

might have to come in at a discount given

the concerns about the travel and lodging

industries,” a fund manager said.

Even so, as Treasuries continue to rally on

AûmIGHT

TO

SAFETYûBIDûTHEûDEALûMAYûSTILLûFETCHû

solid demand from yield-hungry investors,

he said.

Last Thursday, 10-year Treasury yields hit

an all-time low of 0.899% before moving up

to 0.917% in late trading, which was over

BPûLOWERûONûTHEûDAYûACCORDINGûTOû2ElNITIVû

data.

Citigroup, Deutsche Bank, Societe Generale and

Barclays are the joint lead underwriters and

book managers for BX 2020-VIVA.

This MGM, Blackstone casino transaction,

secured by a US$3bn loan, is expected to

FEATUREûlVEûTRANCHESûOFûlXED

RATEûNOTESûWITHû

weighted average life of 9.97 years.

In January, MGM and Blackstone entered

into the US$4.6bn venture that is funded by

the loan and a US$1.6bn equity contribution.

US ABS

US ABS MARKET RESETS, SPREADS

PUSHED WIDER

Supply in the US asset-backed securities

market restarted last week after it stalled

due to a major industry conference in Las

Vegas and jittery credit conditions

stemming from fears about the spread of

coronavirus.

A number of deals priced since last

Monday, including; a US$834.78m prime

auto loan offering from WORLD OMNI, a

US$900.7m sub-prime auto loan transaction

from AMERICREDIT and US$1.011bn equipment

loan offering from JOHN DEERE.

4HEûlNALûPRICINGûLEVELSûFORûTHEû

AmeriCredit and World Omni deals were

anywhere from 5bp to 20bp wider than

comparable ABS offerings sold prior to the

market ruction.

With the primary market on pause the

week before, average ABS spreads in the

secondary market widened as much as 18bp

as investors dumped securitised debt and

riskier corporate bonds in favour of low-risk

US government debt, according to Wells

Fargo analysts.

The spread widening was the most

dramatic since the one seen in December

2018 during a market sell-off touched off by

fears of more rate hikes from the Federal

Reserve, according to analysts at Loomis

Sayles.

The sell-off in risk assets also sent US

benchmark 10-year yields tumbling to

record lows below 1% on Tuesday following

an emergency 50bp rate-cut by the Federal

Reserve.

“Everyone is feeling their way around,”

said Alessandro Pagani, head of Loomis

3AYLESûMORTGAGEûANDûSTRUCTUREDûlNANCEû

group. “It’s hard not to see it as a great

concern,” he said of the virus outbreak.

Despite that there were already signs last

-ONDAYûPRIORûTOûTHEû&EDSûlRSTûRATEûCUTûSINCEû

October that issuers and investors were

gearing up for ABS primary activity to

resume.

Issuers are compelled to raise funds as the

ENDûOFûTHEûlRSTûQUARTERûAPPROACHESûWHILEû

investors are drawn to shorter-dated ABS,

which are offering higher yields than Treasury

bills, analysts and fund managers said.

Last Thursday, yields on three-month

T-bills slid more than 20bp to 0.634%, the

lowest since March 2017, according to

2ElNITIVûDATA

Companies “need to fund activity. They

can’t wait forever”, said Jake Remley, senior

portfolio manager at Income Research and

Management.

CAUTIOUS OPTIMISM

Despite persistent anxiety about the

coronavirus, investors and analysts are

cautiously optimistic, citing the strong

subscription levels on deals that have come

to market this week.

The wider spread levels on offer have

buoyed buying interest as they compensate

for the sharp drop in benchmark yields.

In the World Omni prime auto deal, its

Triple A note with a weighted average life of

2.67 years was priced at swaps plus 40bp last

Wednesday.

This compared with a spread of 20bp for a

comparable tranche in a US$1.5bn prime

auto offering from Honda sold on February

19.

World Omni’s previous deal, a 2019-C

transaction sold in November 2019, priced a

similar tranche at 32bp over.

Traders and money managers said they

are selective on what they would buy as they

anticipate more market volatility ahead.

“So far the market is edgy, but there’s no

panic,” said Loomis’ Pagani.

AIRCRAFT DEAL PULLED

But though the prospects for the overall

market remain solid, some ABS sectors have

been hard hit during the virus-induced sell-

off.

Aviation ABS has been knocked off course

by anxiety about a severe and protracted

drop in air travel if the coronavirus is not

contained.

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6 IFR Bonds 2323 p 25 - 53 .indd 47 06 / 03 / 2020 19 : 18 : 09