When automobile loans and computer lease receivables were first
packaged and sold as securities in the spring of 1985, the
breakthrough in finance made ``securitization'' a new buzzword in
the financial markets.
Over the past three years the market for publicly sold issues of
asset-backed securities (excluding mortgages) has grown to $27.7
billion. Many analysts expect that this is only the tip of the
iceberg and that many novel uses of the idea lie ahead.
Analysts at McKinsey & Co. have concluded in a newly published
book, ``Securitization of Credit,'' that the asset-backed market is
on the verge of ``several years of explosive expansion.''
The authors, James A. Rosenthal and Juan M. Ocampo, said that in
an era of hostile takeovers and emphasis on return on shareholder
equity, the advantages of selling assets through securities
offerings are too great to be ignored:
``We expect more and more companies to be driven to inceased
usage of credit securitization as one of their fundamental tools to
boost returns on equity against unwanted takeover attempts.''
The basic idea is that companies sell assets to a
special-purpose financing affiliate, which in turn sells notes
backed by those assets to the public. Payments on the assets are
used to make principal and interest payments on the securities.
The essential advantage of selling assets is that they can be
packaged into high-quality securities that carry low interest rates
- lower, in fact, than rates the company must pay on its own debt.
In addition, selling assets leaves more capital available for uses
like acquisitions or expansion of a company's core busines.
So far, the asset-backed securities have been sold almost
exclusively to institutional investors. Because securities firms'
gross underwriting spread has been only about $4 per $1,000, there
is not enough of a sales commission to attract the retail brokers
who sell to individuals.
Thomas E. Capasse, vice president at Merrill Lynch Capital
Markets, said, ``Asset-backed financings are going to become a big
factor in the L.B.O. business, helping reduce the reliance on junk
bonds.'' Interest rates on junk bonds are substantially higher than
the rates paid on assets packaged into securities.
Walid Chamma, director at First Boston, the leading firm in
asset-backed securities, said more bankers are recognizing the
benefits of asset sales.
``With the new capital adequacy guidelines set by the central
banks, you will see a lot of banks selling consumer loan assets," he
said. "It is a very efficient way of releasing capital.''
At the same time, investment bankers are becoming more adept at
designing the new issues. …