Analysis: SEC reveals 2024 as a strong year for ABS market

The most recent regulatory data released by the Securities and Exchange Commission’s (SEC) Division of Economic and Risk Analysis indicates a significant surge in US asset-backed securities issuance in 2024. The data reveals that privately placed Rule 144A deals contributed to nearly seven-eighths of the observed jump in issuance, highlighting a substantial increase in market activity.

In its recent transparency initiative, the SEC has shared statistical insights used in its periodic white papers. The dataset, covering US non-agency asset-backed securities priced between 2014 and 2024, demonstrates that the 2024 market reached $946.8 billion, marking a nearly twofold increase from the previous year and coming close to the post-pandemic peak recorded in 2021. Notably, Rule 144A placements surged to $824.5 billion, representing 87% of the year-over-year growth.

Analyzing the breakdown of collateral types provides a deeper understanding of the surge. Arbitrage collateralized loan obligations (CLOs) soared to $414 billion, constituting almost half of the market’s incremental growth. Non-agency retail mortgage-backed securities (RMBS) also experienced a revival, reaching $145 billion mainly through private placements. In contrast, the consumer loan segment showed varied trends, with auto ABS setting a record at $149 billion split between registered and private deals, while credit card and student loan issuance declined, predominantly under Rule 144A.

Public registered deals saw modest growth, totaling $118 billion by year-end, while traditional private placements accounted for just over $4 billion. This led to “other” ABS categories, including equipment leases and small-business loans, filling the gap with $209 billion under Rule 144A and $17 billion in registered format.

Structural trends highlighted include an increase in median class counts, with CLOs having eight tranches on average and RMBS deals featuring seven. Horizontal risk-retention, where issuers retain the first-loss slice, continued to be a prevalent compliance method, covering around 70% of 2024 volume where data was available.

The surge in issuance has impacted spread tightening in sectors like AAA CLOs and prime auto paper, offering issuers more affordable funding despite rising benchmark rates. However, this rebound has also introduced a looser mix of collateral and additional tranches, raising regulatory concerns regarding structured finance leverage.

The decision by DERA to disclose the underlying data aims to enhance surveillance and regulatory oversight in the structured finance space. This move is expected to facilitate closer monitoring of market developments and potential risks associated with the increased issuance activity.