“This year’s ABS issuance in the U.S. amounts to 430 trillion won… “Highest since the financial crisis”

▶ Collateral for unique assets such as music copyrights and data centers is also increasing.

▶ ‘SASB’ bond yields are sluggish amid the commercial real estate downturn

It was found that the amount of asset-backed securities (ABS) issuance in the U.S. increased to 430 trillion won this year.

Bloomberg News reported on the 29th that, based on its own tally, ABS issuance this year reached $313 billion (about 433 trillion won), exceeding $312.6 billion (about 432.5 trillion won) in 2021.

At the same time, the Bank of America (BofA) calculation, which applied different standards, explained that the amount of ABS issuance was the highest since the 2008 financial crisis.

ABS refers to securities issued using less liquid assets as collateral, such as real estate, trade receivables, and mortgage bonds.

As there is a possibility that the final Basel 3 capital rules will be implemented next year, there is an analysis that ABS issuance has increased as banks securitize debt and sell it to investors in the process of reducing lending.

Increasing demand for ABS from investors such as insurance companies is also considered a factor affecting issuance.

Baby boomers who are approaching retirement are purchasing large-scale pension products from insurance companies, and insurance companies are purchasing bond products with relatively high returns, low risks, and long maturities.

The area where the increase in ABS issuance is most noticeable is automobiles, with automobile ABS issuance reaching $32 billion (approximately KRW 44.2 trillion) this year, exceeding $21 billion (approximately KRW 29 trillion) last year.

In addition to traditional collateral, ABS issuance collateralized by exotic assets such as music copyrights, data centers, and wireless phone base station sales is also increasing.

According to Bloomberg, sales of exotic ABS this year amounted to $88 billion (about 121.7 trillion won), an increase of about 63% from $54 billion (about 74.7 trillion won) in the same period last year.

Recently, Internet Protocol (IP) addresses, plastic surgery loans, and restaurant franchise fees have also appeared as collateral, and some say that ABS investors have also become more comfortable with exotic asset-backed securities in recent years.

Meanwhile, Bloomberg reported in a separate article that the yields on bonds collateralized by large buildings are sluggish due to the slump in U.S. commercial real estate.

The situation is particularly serious for ‘single asset/single borrower bonds’ (SASB), which target a single building, instead of the traditional meaning of commercial real estate-backed securities (CMBS), which bundle multiple real estate loans.

For example, the 43-story ‘1407 Broadway’ building located in Manhattan, New York City, USA, issued bonds worth $350 million (approximately KRW 484.2 billion) using rental income as collateral in 2019, and received the highest credit rating of ‘AAA’. It was also evaluated as safer than U.S. Treasury bonds.

However, the bondholders did not receive interest amounting to $1 million (approximately 1.38 billion won) last June, and began exercising their foreclosure rights.

In the end, the building was sold for a lower price than before COVID-19, and AAA-rated bondholders also lost 26%. This was something that had never happened even during the financial crisis.