“We’re very bullish on the asset class,” said Eric Shea, an executive director at MUFG. “When you think about the other comparables like prime auto and cards, which are approximately $50bn and $30bn respectively, this particular market is only increasing [and] we think it could grow to $15bn-$20bn as an asset class.”
Though the market is already sizeable in Japan’s securitization sector — Moody’s has rated around 60 deals — the asset class was only launched in the US in late June, when Verizon launched a $1bn offering backed by wireless device payment plan receivables.
MUFG was one of the lead banks on the Verizon deal, which was heavily oversubscribed by investors, including banks, insurance companies and asset management firms.
ABS investors liked the concept of mobile phone securitizations because of the pools’ short weighted average lives, as well as strong and stable historical performance, panellists said.
“It’s a short asset class with a two year duration, compared to a student loan [which] could be around 30 years,” said Mark O’Neil, a director at S&P Global Ratings. “There’s also no interest rate, so from a ratings standpoint there isn’t any organic excess spread.”
Eileen Hughes, a director at Deutsche Bank, echoed this point, but also pointed out some unique differences in structuring a mobile phone ABS compared to other traditional consumer deals, including the extreme granularity of underlying pools.
“Traditionally, the threshold for consumer loans is usually about $10,000,” said Hughes. “The value of a phone is usually $600-$800 so the sheer volume of the number of loans that would be part of the securitization is enormous compared to a traditional consumer lending facility.”
Raffi Dawson, a managing director of securitization at Mizuho Bank, further added that industry performance data played an important role in structuring deals for the asset class. Panellists on a panel covering esoterics noted that performance data is vital in helping infant asset classes grow, in addition to getting rating agencies comfortable with the sector.
“From a bank perspective on the funding side, we started looking at the asset class in 2013 or 2014,” said Dawson.
“At that time, we had eight to nine months of loan and lease performance data ... S&P and Fitch had data going back to 2007. We looked at it in terms of cohort and customer tenor. There was a strong correlation to the tenor of the obligor with the carrier and its performance. So we were able to structure around that for concentration limits for customers who did not have a lot of history with the carrier,” Dawson added.
Robust trading of the Verizon deal in the secondary markets is a positive indicator of the sector’s future growth into a mainstream consumer asset class, the panellists added.
“On the secondary trading side, we were pleasantly surprised... the trading for the Verizon deal was very robust in the days and weeks after [pricing] and I think it points to the potential of the asset class,” said Shea. “It compares favourably to other flow asset classes like prime autos and cards.”