Dunkin Brands’ latest ABS are trading higher since issuance less than two weeks ago thanks in part to a trove of new non-ABS buyers who have recently jumped into the whole business ABS market, and the overall market’s oft-mentioned scramble for yield, according to Finra TRACE data and two ABS bankers.
For instance, 6.8-year DNKN 2017-1 A-2-I bonds from the 14 September deal traded several times on 20 September at prices ranging from 100.344 to 100.883 and in sizes from USD 500,000 to USD 6m. The bonds priced at par, according to Debtwire ABS data, to yield 3.65%, according to Cory Wishengrad, head of structured products origination at Guggenheim, speaking on an ABS East panel last week.
They were already trading at 100.27 the next day, according to TRACE.
Meanwhile, 9.6-year DNKN 2017-1 A-2-II bonds traded on 20 September at prices ranging from 100.344 to 100.875 and in sizes from USD 1m-USD 5m, also up from par. The bonds priced with a 4.05% coupon.
ABS investors looking for yield can expect USD 5bn in whole business or franchise fee securitizations per year going forward, Wishengrad said. And a growing chunk of the buyer base at the moment consists of investors who don’t traditionally buy structured products, according to Wishengrad and Benjamin Fernandez, managing director at Barclays, speaking on the same panel.
Indeed, many of the investors in recent whole business or franchise ABS from Taco Bell, Domino’s, Dunkin Brands, Focus Brands and Jimmy John’s were what Fernandez termed corporate cross-over investors. They are familiar with the corporate credits, and attracted to the relative safety afforded by ABS structures, according to Fernandez and Wishengrad. Some of the largest buyers of the 14 September Dunkin deal were accounts that don’t typically buy structured products, Wishengrad said.
Many of those buyers expressed an interest in buying BBB exposure in a senior bond, according to Wishengrad. That gives investors a significant yield pickup over other senior bonds, but at credit enhancement levels typically above 50%. Wishengrad touted this month’s Dunkin issue as being able to survive a 55% removal of cash flow without breaking.
The growing new buyer base has increased liquidity for whole business and franchise ABS, and the street bid for the bonds, Fernandez said. According to Wishengrad, USD 100m in the bonds traded in August and their bid/ask spread is typically in the 5bps-10bps range.
There are currently about USD 20bn in whole business and franchise ABS outstanding, USD 6.5bn of which have been issued this year, Wishengrad said. His USD 5bn annual supply estimate includes bonds from new issuers and existing issuers refinancing.
by John Wilen