Subprime Auto Leading 2016 ABS Issuance

In a new report, Wells Fargo analyst John McElravey takes a close look at the 2016 asset-backed securities (ABS) environment. Last week, a total of five ABS deals closed for a combined pricing of $3.3 billion, bringing February’s total to $12.2 billion so far.

McElravey notes that February is typically the most active month for ABS deals ahead of the ABS conference in Las Vegas. Since 2012, February has averaged $18.1 billion in total deals.

So far this year, consumer ABS issuance has fallen $4.2 billion short of last year’s pace. “The slower pace seems to be due to a combination of financial market volatility, Reg AB II compliance, and a later ABS Vegas conference,” McElravey notes.

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The lone exception to the cooler ABS environment this year is subprime auto ABS. Not only is the $5.5 billion in 2016 issuance the largest issuance total of any ABS sector this year, it’s more than $1.1 billion ahead of last year’s pace.

Last year, Wells Fargo & Co WFC, one of the nation’s largest subprime auto lenders, self-imposed a cap on its subprime auto originations. In the wake of the subprime mortgage bubble that nearly tanked the entire financial system in 2008, the firm is capping its subprime auto loan originations at no more than 10 percent of total auto loans.

So far in 2016, it appears as if other lenders are not following Wells Fargo’s lead in moderating subprime auto ABS issuance.

Disclosure: the author holds no position in the stocks mentioned.