DBRS Morningstar’s Takeaways From SFVegas 2022: The State of ABS in Canada

As part of its takeaways series, DBRS Morningstar is publishing several write-ups about pertinent topics discussed at the SFVegas conference. The conference was mainly focused on U.S.-based securitization, but there was a panel about the global market with representatives to discuss Canada, the EU, the UK, and China. Tim O’Neil, Managing Director and Head of Canadian Structured Finance, represented DBRS Morningstar on the panel, and in this takeaway, we focus on the state of Canadian asset-backed securities (ABS).

The Coronavirus Disease (COVID-19) pandemic affected Canadian ABS issuance, with 2020–21 issuance down 17% from the peak years of 2018–19. However, it is still higher than it was in the first few years following the 2007–08 financial crisis. At the end of 2021, the Canadian securitization market reached $73 billion outstanding, and it grew to $77 billion at the end of Q1 2022. Most of the ABS issuance is credit card-backed deals from the Big Six Canadian banks and retail programs.

According to O’Neil, the rest of the ABS market comprises retail auto loan and lease deals, with one large-ticket equipment issuance a year and a small amount of residential mortgage-backed securities (RMBS/HELOC) transactions. Issuance started off slowly in 2022, with omicron variant-related restrictions and Russia’s invasion of Ukraine, but a number of deals that were delayed in the spring have almost all now closed. So far, there have been 13 Canadian ABS transactions, which O’Neil noted already exceeds issuance in the first half of 2020.

During the beginning of the pandemic, some credit card and auto issuers were proactive and offered deferrals. Many borrowers took the deferrals, pushing the rate up, but they were mostly gone by fall 2020. In terms of performance, bank credit card ABS performs better than retail credit card ABS, per O’Neil, and on the auto side, performance was worse during the 2008–09 crisis than during the 2020 and 2021 pandemic years, thanks to government support giving borrowers a boost.

Written by Caitlin Veno

Notes:
All figures are in Canadian dollars unless otherwise noted.

For more information on Canadian structured finance, visit www.dbrsmorningstar.com or contact us at [email protected].

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