The European securitization market had its busiest first half of placed issuance since the 2008 financial crisis, according to data from the trade body Association for Financial Markets in Europe (Afme). Those volumes includes the CLO market, where spreads have tightened throughout the year. Almost without exception, issuers have found a bid for their deals, with the issuance continuing for an unusually long time, into the second week of August.
Finally, this week there are no live ABS deals, but it is just the calm before the storm. After the public holidays at the end of the month, the pipeline is set to fill at great speed which will leave issuers facing the toughest dilemma of the year so far in deciding how to play the market in front of them.
So much so that Santander decided to avoid issuing in the autumn all together, bringing its Holmes 2024-2 trade last week. It was caught up in the volatility early in the week leaving pricing 3bp wider than the most recent comparable deal, which came from Coventry Building Society in July.
That may have been a little unlucky certainly but quite possibly it will still prove to have been the right move given the tough choice issuers who still need to come to market face in the coming months. There may still be plenty of demand, but not only will issuers be competing with each other but also with uncertainty and further market volatility.
Getting on the front foot and being in and out of the market early is one tactic to avoid a busy market but many issuers will be trying to do the same thing. It doesn't always work, particularly with deals backed by more esoteric collateral, which can get lost when investors only have limited time on which to analyse fresh deals on any given day.
Last year, WiZink Bank’s Portuguese credit card ABS came to market in late August but got caught up amid heavy supply. Pricing was widened and the deal shrunk but still took until September 22 to be priced and it needed an order from the lead manager.
An alternative strategy might be to wait and see if there is a window in late October, or early November but that will involve navigating around the US election. It’s not like investors are all going to go on holiday that fortnight, but only the brave, or foolish, will fancy hanging around until then to issue given the volatility the event could well generate.
The other option is to go for a pre-placed trade. It might frustrate some investors not to get a look at everything, but for issuers it can provide certainty of execution even if it means paying a bit more spread. Don’t be surprised to see a rise in pre-placed deals this autumn.
Conditions get more treacherous when you add into the mix that there is a risk of general spread widening. Last week’s dramatic market movements based on a single data point - US jobs data - prove that markets are jittery. Some sources have told GlobalCapital they think the market will move wider as investors' appetite to take on fresh risk naturally dwindles towards the end of the year anyway.
If everyone tries to get ahead of that lot, the supply glut could make spread widening a self-fulfilling prophecy. There are no easy answers for issuers, so timing deals this autumn will take skill, nerve and luck.