Investors are looking to sell consumer loan-backed bonds valued at $940 million that they had bought a little over a year ago using low-cost loans from the Federal Reserve.
The bonds are triple-A-rated and are backed by auto and credit card loans, according to Jim Harrington, an asset-backed securities investor who had purchased some of these bonds when he worked for Ryan Labs Asset Management in New York.
In an effort to support the consumer loan market, the Fed launched the Term Asset-Backed Securities Loan Facility in March last year.
Through the program, it offered investors loans at attractive rates. The loans were nonrecourse, meaning that if anything went awry, the investor could walk away from the loan with minimal losses.
The move was designed to let investors purchase newly minted bonds backed by consumer debt at a time when investors were wary of debt whose underlying collateral they were unsure about. Talf was deemed successful in energizing the market for these bonds as about $140 billion in asset-backed securities were sold last year. By November, more asset-backed bonds were sold outside the program than those under Talf.
"Those bonds are trading above par, so investors have made their money and want to sell so they can reallocate their cash," Harrington said.
They could buy new asset-backed bonds or they could buy corporate debt, he said, noting there is ample supply of both.
Among the bonds on sale Thursday were ones issued by Ford Motor Co., AmeriCredit Corp. and Citigroup Inc., Harrington said.