Subway is set to borrow $2.3 billion through asset-backed securities (ABS), marking its second foray into this market in 2024. This follows the company's significant $3.35 billion bond sale in May, which was backed by franchisee fees and represented the largest securitization of its kind. The latest ABS sale is being led by Barclays Plc and Morgan Stanley and aims to refinance a term loan while encompassing restaurants worldwide. If successful, this deal would rank as the fourth largest whole business securitization to date. The previous Subway bond offering attracted nearly $20 billion in orders, reflecting strong investor interest [21cf752c].
The broader ABS market has seen a substantial increase in issuance this year, reaching $242 billion compared to $192 billion in 2023. This surge is attributed to a growing appetite for asset-backed securities as banks and corporations seek to offload risk and refinance existing loans. The overall market dynamics have been favorable, with high yields on ABS deals enticing investors [fd2b15be].
According to a recent article from GlobalCapital, investors are increasingly competing for allocations in ABS mezzanine tranches, indicating a tightening market. The challenges in securing these allocations highlight the competitive nature of the current ABS landscape. The article also discusses the potential for consolidation in the servicer market, which could impact future securitization deals [49aeb54b].
In the context of the current economic climate, a survey by Bank of America revealed that investors are cautiously optimistic about the global economy, with many anticipating a 'soft' landing rather than a recession. This sentiment is reflected in the growing confidence in ABS and other fixed-income assets, as investors adjust their strategies in response to changing economic conditions [1c9788f5].
Despite some concerns regarding potential delinquencies and defaults in consumer ABS, investors maintain a constructive outlook on the sector. The COVID-19 pandemic has affected various segments, including auto loans and credit cards, but there is a belief that consumer ABS will regain strength as the economy recovers. Investors view the current market conditions as an opportunity to acquire ABS at attractive prices [97d2113f].
Overall, Subway's upcoming ABS sale is emblematic of the broader trends in the asset-backed securities market, characterized by increased issuance, strong investor demand, and a cautious yet optimistic outlook for the economy and financial markets [28ef966a].