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Concerns about a potential pandemic-related liquidity crunch for auto finance companies with funding programs that rely on issuing asset-backed securities have all but faded from view.
With a historic surge in wholesale vehicle pricing occurring at the same time the ultra-low interest rate environment has stimulated robust investor demand, spreads over benchmark rates on the AAA-rated classes of two recently priced auto ABS deals tightened to levels that are below even those associated with pre-pandemic transactions. Market trends are such that the Federal Reserve's Term Asset-Backed Securities Loan Facility has not only been unnecessary for supporting the flow of credit to the auto finance sector, it has essentially been rendered irrelevant to the asset class.
Spreads on the class A-2-A tranche of the latest transaction from Santander Consumer USA Holdings Inc.'s flagship subprime auto ABS platform, Santander Drive Auto Receivables Trust 2020-3, narrowed to their lowest level since a May 2019 deal at just 21 basis points over the eurodollar synthetic forward rate, according to pricing information filed Sept. 17. For American Honda Finance Corp., spreads on the class A-2 notes of Honda Auto Receivables 2020-3 Owner Trust upon their Sept. 22 pricing...