NEW YORK, July 25 (IFR) - US companies have joined the global race for investment alternatives to low-yielding US Treasuries.
Sources said cashed-up Google Inc had participated in at least two benchmark securitisation transactions in the last few weeks, putting up sizeable amounts for notes across all tranches in a rare instance of a US corporate giant buying structured notes.
“Many companies are wary of letting the world know that they are taking on credit risk of other firms but they are doing that, albeit under the radar,” said one analyst.
“Most of the technology and pharmaceutical companies have big cash holdings and that cash is not doing anything because the M&A climate has not been very conducive so they are deploying funds in high quality, short-term instruments.”
Sources said Google had come up with a chunky order that helped Hyundai Capital America (HCA), the US captive finance company for South Korean automaker Hyundai Motor, to raise in mid-July more than US$1.45bn by selling notes that securitised auto receivables. The transaction is the largest securitisation completed by HCA to date.
Hyundai offered six tranches rated Triple A to Single A through Hyundai Auto Receivables Trust 2012-B, and the Internet search giant was seen bidding for most of the tranches.
The weighted average coupon on the trade was 0.77%, while the weighted average spread on the Triple A notes was 10bp.
Google was also reported to be among the larger buyers of notes that securitised auto receivables and enabled Honda Auto Receivables Owner Trust to raise US$1.5bn last week. Four Triple A tranches were offered by Honda with 1.05-year, 2.10-year and 3.10-year weighted average lives, respectively.
The three tranches priced at four basis points over the euro dollar synthetic forward benchmark, interpolated swaps plus 8bp and interpolated swaps plus 18bp, respectively. All these were the lowest spreads since June 2007.
“But even at these levels, participating across the tranches probably made sense for Google because they are still offering a pick-up compared to say an unsecured bond that carried a similar rating and tenor,” said one source.
Simply put, companies with large cash piles are now part of the race for better-yielding but relatively safe alternatives to US Treasuries, said the source. According to Google, as of June 30 2012, cash, cash equivalents, and short-term marketable securities totalled US$43.1bn.
Google declined to comment to IFR about its securitisation purchases.
Earlier in the year, there was talk that top US corporates were among the buyers of investment-grade bonds but yields on those instruments are falling fast. Issuers have set record low coupons across the curve as Treasury yields have fallen this year.
“In this environment, prime auto and card ABS is slowly becoming a great alternative for these corporates,” said one analyst. “There is yield pickup and they should be comfortable purchasing notes issued by prime well-heeled issuers like Honda and Hyundai Capital America which have performed well in the worst markets and remained liquid in secondary markets.”
Indeed, US auto ABS issuance has risen dramatically this year as confidence in the asset class has begun to recover.
US new issue auto ABS supply has been robust with over US$57.8bn priced in the year so far, according to Thomson Reuters data. At the same point in 2011, volume was only US$39.8bn.
The International Financing Review is a Thomson Reuters publication; www.ifre.com Reporting by Shankar Ramakrishnan; Editing by Ciara Linnane