Citizens Bank is preparing to price its first bond backed by loans to car buyers just weeks after announcing that starting in July it would no longer originate these so-called indirect auto loans.
The Rhode Island-based bank is one of several regional lenders including Capital One and Fifth Third to have recently cut back or entirely pulled the plug on their auto loan business in the wake of rapidly rising interest rates.
Citizens' first auto asset-backed offering has four classes of Triple A rated notes whose maturities range from about two months to three years. JP Morgan, Morgan Stanley and Citizens are the joint bookrunners for the deal, called Citizens Auto Receivables Trust 2023-1.
A portfolio manager familiar with the deal said that Citizen's decision to exit the business could give ABS investors pause when considering this week's offering.
"You want an issuer to have skin in the game," the portfolio manager said. "Now you are not sure whether the issuer might bring another deal after this one."
Citizens said on June 7 that it was exiting the business of underwriting loans to consumers through car dealer relationships in an effort to "optimize its balance sheet." Citizens said it will continue to service existing auto loans on its balance sheet. As of March 31, it had US$11.5bn of loans to the sector outstanding, down 20.1% from a year earlier.
The portfolio manager said Citizens might have to pay up to get the ABS deal done this week, in part because investors have other options for increasing their exposure to the auto sector.
Ford Motor, for example, is seeking to price a US$1.32bn prime auto loan deal this week. Price guidance on the US$398m Triple A rated tranche, with a 2.51-year weighted-average life, is US Treasuries plus 84bp-86bp.
Initial price thoughts on the Citizens Bank's Triple A rated US$241.5m note, with a 2.17-year WAL, is plus 120bp-125bp, a second portfolio manager said.