(Bloomberg) — Sales of debt backed by everything from auto loans to airplane leases to Subway franchise fees have hit their highest level since the financial crisis, as banks try to meet new capital rules and insurance companies clamor for higher-yielding debt.
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Asset-backed securities sales have topped $313 billion this year, surpassing 2021’s $312.6 billion, data compiled by Bloomberg shows. According to Bank of America Corp., which uses a different methodology for counting asset-backed issuance, this year’s sales are the highest in the decade-and-a-half following the Great Financial Crisis.
The heavy issuance partly stems from banks offloading loans from their books ahead of new capital rules, bundling the debt into bonds they can sell to investors. The firms could be required to start implementing Basel III endgame rules next year, which in many cases require them to pare back risk and fund loans with more capital, cutting into potential returns.
Investors, including insurance companies, are eager to buy asset-backed debt now and their demand has helped drive issuance. As Baby Boomers retire, they’ve been buying record volumes of annuities from insurers to fund their retirement. In turn, insurers putting the products together are looking to fund them with bonds offering relatively high yields, low credit risk, and longer durations.
Investors have flocked to exotic asset-backeds in particular — bonds supported by music royalties, revenue from data centers and cell towers, among other cash flows, instead of more conventional collateral like credit card debt. Sales of exotic ABS have jumped to about $88 billion, up from $54 billion around this time last year, data compiled by Bloomberg shows.
“The overall breadth of the market continues to get bigger with more digital infrastructure, music royalties and cell towers and so far investors have been very receptive,” said Dave Goodson, head of securitized credit at Voya Investment Management.
Issuers have tied their bonds to ever weirder forms of collateral this year, including internet protocol addresses, personal loans made to art collectors, and loans for cosmetic surgery. Bonds backed by restaurants’ assets, including fees from franchisees, have also grown more popular. Sandwich maker Subway sold $3.35 billion of bonds known as whole business securitizations earlier this year — the largest such sale of its kind.
