More Good News For Securitization

The Wall Street Journal reports another positive sign for the securitization market. JP Morgan completed another credit card-backed transaction without the help of the Federal Reserve's Term Asset-Backed Securities Loan Facility (TALF). In late June I mentioned that the market for such deals was beginning to open when another deal was completed and upsized. This latest deal shows how much progress has been made since then.

According to the WSJ, the prior JP Morgan credit card deal was one in July including $1.54 billion in credit card-backed securities sold for 85-basis points over 1-month LIBOR. This week's deal was much better. It was upsized due to investor demand from $2 billion to $2.53 billion and sold for only 45-basis points over 1-month LIBOR. Both the increase in size and decrease in spread are notable. They show that investors want more of these securities and are willing to take less return for them.

This deal alone also increases the amount of non-TALF issuance for credit card asset-backed securities (ABS) so far this year by around 20 percent. One industry source from the WSJ comments on this deals success:

"The deal came in the middle of the month, was increased in size and is investor-driven," said Jim Harrington, senior portfolio manager at Ryan Labs Asset Management in New York, referring to Wednesday's bond sale. "It means the market is doing better still."

Of course, it should be noted that prime credit card ABS like those sold in this deal are considered to be one of the most pristine types of ABS. So the residential and commercial mortgage backed securities likely won't fare quite as well just yet. But this is still a step in the right direction.

This deal's success is also a great development for consumer lending. Once the securitization markets completely open back up, credit should begin flowing again more easily to American consumers. Of course, that does not mean credit will then flow as freely as it did prior to the crisis, though I'd argue that's a good thing.