Global Developments & Credit Update Vera Chaplin Managing Director Asia Pacific Structured Finance Ratings November 2015 Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor s. Copyright 2014 by Standard & Poor s Financial Services LLC. All rights reserved.
Securitisation Slow Growth and Untapped Market Potential 2 Global issuance to be affected by credit growth, funding conditions and untapped market potential U.S. expects moderate growth with economic recovery; Europe expects growth with softening policymakers stance on securitisation; Australia is steady, Japan is slowing, Korea is strengthening, other parts of Asia are sporadic and China has re-emerged with record issuance; and Recovering markets, untapped markets and new asset classes are areas of potential growth Performance is generally stable across the globe Yield search continues with investor interest in nontraditional asset classes Policymakers stance on securitisation is likely to influence future investment and issuance decisions
U.S. Issuance: We Expect A Small Increase (US$B) 2014 2015 YTD 2015F 2016F 2016F (%) ABS 206 175 204 227 42% Auto-related 96 94 102 110 20% Cards 47 25 40 50 9% Student loan 16 12 15 15 3% Equipment/fleet 16 16 16 17 3% Other ABS (including nontraditional) 31 29 31 35 7% CLO 124 86 100 90 17% CMBS 94 87 110 150 28% SASB/LL 29 28 40 40 7% RMBS 38 44 60 70 13% Total $462 $391 $474 $537 100% Sources: Standard & Poor's Ratings Services. Slow economic recovery indicate small increase in issuance volumes with 2007 CMBS peak open up to prepayment and support issuance. CLO expect decline due to impact from upcoming risk-retention rules. 3
US Issuance: Growing With Untapped Market Potential U.S. (US$ bil) 700 600 Structured Finance Issuance (Excluding RMBS) Auto-related Credit card Student loans Equipment/fleet Other ABS CLO CMBS 500 $537 400 300 200 100 0 Copyright Standard & Poor's 2015 Reference: Structured Finance Is Poised To Enter 2016 With Robust Issuance, But Some Securitization Potential Remains Untapped, September 10, 2015 4
US Issuance: Proportion of Credit Securitised Is Falling Credit Volume (bars) vs Proportion Securitised (lines) (USD bil. $) 12000 10000 8000 6000 4000 2000 0 Auto-loans Credit cards Student loans Commercial mortgages Residential mortgages % auto-loan securitised % credit card securitised % studient loans securitised % commercial loans securitised % Nonagency resi Securitisation % agency & GSE resi securitisation 2009 2010 2011 2012 2013 2014 Q1:15 Q2:15 % 70 60 50 40 30 20 10 0 Source: Federal Reserve Z Report, Securities Industry and Financial Markets Association. 5
US Issuance: Auto-related ABS Reflect Underlying Sales Activities and Funding Needs US Auto sales vs Auto-related ABS 250 200 US Auto sales Auto ABS 150 100 50 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015F Data source: article titled "Structured Finance Is Poised To Enter 2016 With Robust Issuance, But Some Securitization Potential Remains Untapped", Sept 10, 2015. Note: auto sales is data as at May 2015, auto related ABS for the full year is forecast by Standard & Poor s. 6
Nontraditional ABS Enquiries Are Rising Type of assets (one third international assets): Whole of business securitization, e.g. $2.5 billion of Dunkin s and Wendy s each and there are refinance needs coming up, international assets such as Domino s; Market place lending P2P; Solar power, Small business loans similar to CAN Capital, Transportation related e.g aircraft leases, railcars, container leases, exposure to oil; and Trade Finance banks looking to the capital markets for growing funding gap. Pricing and liquidity: When pricing, investors do not compare exposure to ABS only but also to corporate exposures; Lack of comparable due to different issuers coming to market each year; Priced higher when the product is new and the margin gets compressed as more of them come to market; and Several deals subordinated tranches are oversubscribed with senior tranches taking time to fill; Potential risk: Stability of the concept, historical performance, closure of business, stress testing and concentration. 7
European Issuance ( Bil): Increasing From A Lower Base 2014 2015 YTD 2015F 2016F ABS 25 21 34 43 Auto-related 17 12 19 23 Cards 3 3 5 7 SME 2 2 4 6 Other 3 4 6 7 CLO/CDO 15 9 17 20 CMBS 4 4 6 7 RMBS 25 19 34 42 Other Sectors 4 1 1 1 Total 73 54 92 113 Sources: Standard & Poor's Ratings Services, J.P. Morgan, Informa, Bloomberg. October Investor-placed European securitization issuance was 4.4bn (3 RMBS (UK, Dutch, and Belgian), 2 CLOs, one German auto ABS, and one Finnish auto loan ABS. 8
European Issuance: We Expect Strong Growth Investor-placed European securitization issuance reached USD$61 billion, up 6% compared to the same period in 2014 (up 33% in Euro). Covered bonds reached USD$97 billion, up 7% (up 22% in Euro). Increased diversity e.g. Spanish RMBS issuance for the first time in many years. European Central Bank s purchase program seem to have influenced both securitisation and covered bond programs. ECB bought Euro 110 billion of covered bond, and Euro 11 billon of ABS. UK RMBS, which is not eligible for ECB purchase program, has held the highest issuance volume in the sector. Credit performance have stabilised reflecting a slow improvement in the macroeconomic backdrop for many countries in the region and are reflected in positive rating trend. European policymakers are likely to soften their stance on securitisation across a variety of regulations for example the including some ABS as high-quality liquid assets under Basel III bank liquidity rule, and potentially lower capital charges requirement for securitisation exposures deemed to be simple, transparent and standardised. Our 2016 forecast for European investor-placed securitisation is between USD 110 billion to 140 billion, up 20% over our 2015 expectation 9
Asia Issuance: Mostly Domestic Issuance Asian exposure offers diversification and yield for some investors; China Surprises all with about USD 50bn issuance although mainly domestic issuance; Australia Dominated by housing loan funding diversification requirements (RMBS and CB expect to exceed USD 40bn); Japan Lower issuance in recent years; South Korea 20151H totaled KRW20.3 trn (about USD18bn) up 159.9%, much due to a 391.98% y-on-y increase in KHFC s RMBS. Over KRW 20trn is issued again in Q32015 (according to Financial Supervisory Service s Q3 report on issuance of ABS. Kookmin bank issued its first covered bond under the updated Korean covered bond legal framework; and Singapore Covered Bonds issued by DBS and UOB 10
China Issuance: Rapidly Developing Primary asset sectors: CBRC/PBOC scheme: CLO, Auto ABS, RMBS, consumer receivables; CSRC: lease-backed, infrastructure fees securitization, micro-loans financing; Smaller originators such as city banks, agricultural banks, and foreign banks increased their issuance of CLO transactions in China; and Note: *January to June Source: Chinabond, Shanghai Stock Exchange, Shenzhen Stock Exchange, and sellers' announcement. Compiled by Standard & Poor's Ratings Services. The first transaction with revolving collateral (dynamic pool) was launched. 11
China s Growing Consumer Credits Yet To Be Tapped New Passenger Car Sales in China car sales ( RMB) Y-on-Y growth (%) 60 50 40 30 20 10 0 2009 2010 2011 2012 2013 2014 2015* Note: 2015 data is year to August. 25,000,000 20,000,000 15,000,000 10,000,000 5,000,000-12
Auto-ABS in China Attracts International Investor Interest Originator Volume (RMB mil) Issuance year SAIC-GMAC Automotive Finance Co. Ltd. 1901 2008 SAIC-GMAC Automotive Finance Co. Ltd. 2000 2012 China Merchants Bank 8100 2014 Dongfeng Nissan Finance Co. Ltd. 800 2014 Toyota Motor Finance (China) Co. Ltd. 800 2014 Ford Automotive Finance (China) Co. Ltd. 835 2014 BMW Automotive Finance (China) Co. Ltd. 800 2014 Volkswagen Finance (China) Co. Ltd. 800 2014 GAC-SOFINCO Automobile Finance Co. Ltd. 800 2014 SAIC-GMAC Automotive Finance Co. Ltd. 3000 2014 Ford Automotive Finance (China) Co. Ltd. 3000 2015 China Merchants Bank 10547 2015 Volkswagen Finance (China) Co. Ltd. 1900 2015 Ping An Bank Co. Ltd. 3147 2015 BMW Automotive Finance (China) Co. Ltd. 2569 2015 SAIC-GMAC Automotive Finance Co. Ltd. 4000 2015 SAIC-GMAC Automotive Finance Co. Ltd. 3000 2015 Dongfeng Nissan Finance Co. Ltd. 1500 2015 13 Source: Chinabond and sellers' announcements. Compiled by Standard & Poor s
Australia Issuance: RMBS Dominates Amount(Mil.A$) 70,000 60,000 Standard & Poor's Ratings Services Rated New Issuance (Domestic/Euro/Global) Domestic Euro Global 50,000 40,000 30,000 20,000 10,000-2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: Standard & Poor's New RMBS issuance was slightly more than $AUD14.2 billion as at Q2 2015 compared with $AUD14.3 billion at the same time last year. The issuance volume has now exceeded A$20 billion. Covered bond issuance reached $15billion. Spreads have widened, which followed similar development in banks unsecured debt issuance 14
Proportion of Australian Mortgage Securitized Has Declined Percentage of Australian Residential Mortgage Securitised Total residential loans mortgages outstanding % securitised 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% Mar-02 Aug-02 Jan-03 Jun-03 Nov-03 Apr-04 Sep-04 Feb-05 Jul-05 Dec-05 May-06 Oct-06 Mar-07 Aug-07 Jan-08 Jun-08 Nov-08 Apr-09 Sep-09 Feb-10 Jul-10 Dec-10 May-11 Oct-11 Mar-12 Aug-12 Jan-13 Jun-13 Nov-13 Apr-14 Sep-14 Feb-15 AUD Mil 1800000 1600000 1400000 1200000 1000000 800000 600000 400000 200000 0 Source: Australian Bureau of Statistics, Catalogue number 5609 table 12. 15
Standard & Poor s Japanese Rated Issuance Total Amount Of Rated Structured New Issues in Japan (Mil. ) 1H 2015 2H 2014 1H 2014 2H 2013 1H 2013 ABS* 95,000 46,300 63,895 66,433 162,635 Structured credit - - - - - RMBS 889,300 702,500 820,100 933,600 882,400 CMBS - - - - - J-REITs 7,000 9,000 19,500 17,500 12,000 Total 991,300 757,800 903,495 1,017,533 1,057,035 Total no. of transactions 11 13 14 16 18 16 Reference article: Rated New Issuance In Japan's Securitization Market Totaled 990 Billion In First-Half 2015, Up 9.7%
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