As the final deadline to get low-cost loans from the Federal Reserve nears, issuers of consumer loan-backed bonds are swooping in with fresh deals.
Nearly $6 billion of asset-backed bonds will be sold this week, just before the Thursday cutoff date for investors to procure nonrecourse loans through the central bank's Term Asset-Backed Securities Loan Facility.
Last month, under $4 billion of Talf-eligible deals were sold.
The bulk of the new securities up for sale this time around are backed by collateral that is considered "off-the-run" — including insurance receivables and floor-plan loans — rather than more mainstream bonds backed by auto loans and credit card debt, which form the bulk of this market.
Among the deals being marketed this week are an insurance premium receivables-backed $1.2 billion bond from Premium Finance Specialists and a floor-plan-backed $567 million bond from Ford Motor Credit.
CIT Group, the century-old commercial lender attempting to rebuild its business after exiting bankruptcy, is also tapping the market with an equipment lease-backed $667 million bond.
The Fed launched Talf last year when the asset-backed market froze as investors shied away from collateral they were uncomfortable with.
William Dudley, the president and chief executive of the Federal Reserve Bank of New York, once described Talf as one of the central bank's "most innovative programs."
Listing the challenges the market faced, he said it was important to restore investor confidence in the ABS market.
Now, as the government is pulling away its financing and the appetite for risk is increasing, it is clear Talf achieved its goals.
More than $100 billion of securities eligible for Talf funding have been sold since the program's launch, despite initial reluctance on investors' part as they dealt with bureaucratic issues.
In June, investors bought Talf-eligible bonds worth $16.4 billion, the biggest amount sold in one month under the program.
Investors increasingly began to use their own money to buy these bonds and by November, more non-Talf deals than Talf-eligible bonds were sold.
Risk premiums on these securities tightened and even though the market is still a fraction of its size before the credit crunch, at least it is not paralyzed.
In 2006, issuance of asset-backed securities, not including residential mortgage-backed securities, stood at $700 billion, according to the Securities Industry and Financial Markets Association.
That figure dwindled to $168 billion last year.
Talf "reinforced the backbone of the key sectors of the consumer segment and has nudged people into the tertiary sectors," Nigro said.
Now, as investors are more comfortable with the asset-backed market, "the hunt for credit risk is on," he said.