Some parts of the consumer-loan-backed market could be at more of a disadvantage than others when the Federal Reserve in March winds down a program it has used to prop up the market.
Industry participants say the stronger issuers and the higher-quality bonds will not be affected. But weaker issuers, with deals backed by loans more likely to underperform, will lose out.
Michael Wade of Barclays Capital in New York said the end of the central bank's Term Asset-Backed Securities Loan Facility will have little effect on some asset classes like prime auto and credit cards.
For others, such as floor plan, private student loans, retail credit cards and subprime auto, the expiration of Talf is likely to have a bigger effect, said Wade, head of asset securitization origination in the Americas for Barclays Capital.
"The impact of the end of Talf may be different for the generic on-the-run asset classes versus less-liquid, less-frequently securitized asset classes," Wade said, because they are less common and still rely heavily on Talf investors.
Floor-plan loans help pay for expensive inventory, such as cars or boats, until it can be sold.
Talf, launched last March, offers cheap loans that investors use to buy newly created bonds backed by auto, student and equipment loans as well as credit card debt.
JPMorgan Chase & Co., Citigroup Inc. and other issuers increasingly marketed deals that did not lean on Talf as the market improved.
By November, more deals were sold without Talf assistance than with it. Cash investors, for example, bought every auto asset-backed security issued in the past two months; Talf loans were used only for less-common sectors like floor plan and retail credit card ABS, Citi analysts wrote in a note.
Only one Talf-eligible deal has been sold in January, compared with a dozen deals worth more than $16 billion in June. The lack of new deals this month may reflect that the Fed's application deadline came only a week after the holidays.
Over the next two months, before Talf ends, there could be substantially more issuance, said Randall Bauer, senior portfolio manager in the structured products group at Federated Investors in Pittsburgh.
Issuers would likely be those in the nontraditional sectors and those that have difficulty in finding buyers without incentives like the Fed's nonrecourse loans.
But, Bauer said, "For higher-quality issuers, the ending of Talf will be a nonevent."