NEW YORK -(Dow Jones)- The auto sector of the asset-backed bond market is in high gear: Securities backed by auto loans and inventory add up to about $8 billion so far this year.
Toyota Motor Corp. (TM, 7203.TM) is the latest issuer to join the ranks, with a $1 billion bond announced late Tuesday. The security is backed by prime retail auto loans.
Other issuers include Ford, with a $1.137 billion bond; Ally Financial Inc., with a $1.25 billion deal, Hyundai Motor Co. (HYMLY, 005380.SE) with a $920.78 million bond; and Americredit with a $800 million security.
Even last year the auto sector saw robust issuance. Bonds valued at $57.67 billion were sold, comprising about 60% of all new asset-backed securities, or ABS, according to data from Citigroup. In 2009, autos accounted for about 42%, or $58.19 billion, of $136.986 billion in asset-backed bonds sold.
"We expect a healthy pipeline of issuance," said Jon-Claude Zucconi, a director in the securitized products origination group at Barclays Capital in New York. "The floodgates have opened."
The pace of issuance will continue and more such bonds will surface after the American Securitization Forum's conference in early February, he said.
Zucconi estimates issuance of auto sector bonds, coupled with securities in the equipment sector, will range between $70 billion to $75 billion in 2011.
The performance of these bonds makes them attractive for investors. Auto ABS constitute roughly 22% of lifetime upgrades since 1986, yet fewer than 2% of the downgrades among all U.S. asset backed securities ratings changes by Moody's Investors Service. Even among auto ABS, prime autos boast a strong upgrade-to-downgrade ratio of 5:1.
Issuers, mainly auto finance companies, are able to meet investor's need for these relatively short-duration and well-performing bonds as they aren't curtailed by new regulations which make securitization more expensive for banks.
Healthy auto sales are providing the collateral needed for these bonds. U.S. auto sales have risen the past 11 consecutive months, and growth is expected to continue this year as the U.S. economy continues to improve. When consumers buy new cars, the loans they take out are bundled into securities and sold to investors.
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