Some companies are retreating from securitization as investors seek higher yields

Some companies tapping into the cash securitization market are retreating as rising interest rates and the war in Ukraine mean investors are demanding higher yields.

Fintech lender Affirm Holdings inc

and auto lender World Omni Financial Corp. are examples of companies that have recently canceled or postponed proposed transactions.

Companies package certain types of consumer and business debt, such as auto and credit card loans, into securities and sell them to investors. Issuance of such asset-backed securities in the U.S. fell 45% to $79.4 billion this year through March, compared to the same period last year, according to data from the Securities Industry and Financial Markets Association. The decrease was mainly due to lower issuance of corporate bond-backed securities. Other factors such as a decline in lending or consumer confidence may affect overall lending.

By comparison, U.S. corporate bond issuance fell 14% to $521.8 billion over the same period, according to SIFMA.


Brooke Major-Reid, chief capital officer at Affirm.


Affirm Holdings Inc.

Affirm, which specializes in buy-now-pay-later transactions, decided last month not to go ahead with a deal after determining it wouldn’t get the price it wanted, said chief capital officer Brooke Major-Reid by Affirm. The $500 million deal would have refinanced existing debt rather than inject new funds. Ms. Major-Reid declined to provide further pricing information.

Affirm has increasingly relied on securitization to fund its rapid growth in recent years and views the market as a relatively efficient source of funding. As of December 31, Affirm had funded approximately one-third of its $6.3 billion loan portfolio with securitisations. The rest was funded with a mix of direct credit sales and inventory financing, in which the company borrows against its consumer loan balances.

“There is no question that risk will be reassessed,” Ms Major-Reid said, adding that demand for Affirm’s loans remains strong and that the company will re-enter the market when opportunistic may be.

Spreads, or the average excess return over a reference interest rate, on asset-backed securities have widened year-to-date and particularly over the last two months across sectors from credit cards to auto loans and particularly riskier consumer loans. Investors are examining the impact of higher interest rates and whether they are taking additional risks – for example, if the war in Ukraine slows economic growth or if rising inflation affects loan repayment rates.

For example, spreads on three-year, triple-A-rated bonds backed by top-rated auto loans increased 0.33 percentage points between Feb. 3 and April 7, according to JPMorgan Chase & Co., whose dataset largely matches US covers consumer and commercial securitisations rated by at least one rating agency. Over the same period, spreads on three-year triple-B bonds backed by subprime auto loans increased 0.50 percentage point, according to JPMorgan.

World Omni Financial, an auto finance company, earlier this month issued and rated a $926.5 million securitization that it decided to restructure in mid-March after a sharp rise in Treasury yields, said Eric Gebhard, group vice president of Finance and Treasurer at JM Family Enterprises Inc., the parent company of World Omni. Treasury yields rose to multi-year highs last month, reflecting investor expectations for more rate hikes by the US Federal Reserve.

The transaction “was delayed because the sharp rise in benchmark interest rates made the securitization structure inefficient,” Gebhard said, noting that the restructured transaction provides investors with a cushion against risk. The company always intended to re-enter the market after closing the deal last month, he said.

Firms that regularly use the securitization market are reassessing whether now is the best time to do so given weaker investor demand compared to previous quarters, said Richard Bianchi, managing director of global business development at DBRS Morningstar, a rating agency. “Right now, the investor base is a bit perfunctory — there’s not that much money chasing deals,” Mr. Bianchi said, speaking broadly about the market.

While large lenders have other funding options at hand, some smaller lenders that rely on securitisations are looking for the right time to close a deal, Mr. Bianchi said.

Investors are becoming more cautious, examining macro-level risks, including late payments on some types of consumer credit, which are starting to rise despite anticipating historic lows earlier in the pandemic, when people used stimulus funds to increase savings and pay down debt . said Adam August, group vice president of securitized products at TCW Group Inc., an investment firm.

“The winds are changing,” said Mr. August. TCW has not made any significant adjustments to its investment strategy, he said.

Lender SoFi Technologies inc

began to rely less on the securitization market ahead of its final volatile spell, Chief Executive Anthony Noto said at an investor conference on March 22. The company, which received a banking license earlier this year, funds its loans with deposits, full-credit sales and warehousing facilities, Mr Noto said. SoFi does not disclose information about the volume of loans it securitizes or sells, or the breakdown of the funding sources used.

“We use this market when prices are right,” Noto said at the conference, referring to securitisations.

write to Kristin Broughton at

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