BNP Paribas SA subsidiary Bank of the West pulled a $711 million prime auto loan securitization on Thursday, according to a person with knowledge of the matter.
The bank cited unfavorable market conditions as the reason for shelving the asset-backed offering, said the person, who asked not to be identified because the information isn’t public.
Investors are demanding some of the the highest yields relative to benchmark debt in two years amid concerns about a global slowdown and uncertainty over future interest rates. That’s threatening to drive up yields on bonds that finance everything from auto debt to personal loans.
Wells Fargo & Co. analysts John McElravey and Ryan Brinkoetter attributed the spread widening to “diminished demand, low all-in yields and economic and monetary policy uncertainty,” according to an Oct. 27 note to clients.
Cesaltine Gregorio, a spokeswoman for BNP Paribas, declined to comment. Michele Scott, a spokeswoman for Bank of the West, didn’t immediately respond to messages seeking comment.
Bank of the West had offered a AAA-rated, two-year portion of the deal at a rate between 77 basis points to 80 basis points more than benchmark rates. The average extra yield paid on prime auto-loan backed bonds of same ratings and similar maturities was 45 basis points in the week ending Oct 30., according to Wells Fargo. The 52-week minimum is about half that average.
Many deal sponsors, most of them non-banks, are still willing to issue ABS even at higher spreads, since the cost of funds hasn’t materially changed, the analysts said.
Investors who buy bonds backed by riskier auto loans are demanding higher yields from issuers with shorter operating histories in securitization markets as loan terms lengthen and underwriting quality deteriorates.
Bank of the West has issued only two previous auto loan securitizations, according to a Moody’s Investors Service pre-sale report from Oct. 29.