City of Benicia
City of Benicia
PFM Asset Management LLC 50 California Street, Suite 2300 San Francisco, CA 94111 415-982-5544
© PFM Asset Management LLC
Asset-Backed Security (ABS) • Securities issued by a sponsoring company and backed by pools of assets. The sponsoring company creates a branded, bankruptcy-remote trust to ensure debt holders have access to the cash flows from the assets as collateral. –
Issuer:
Sponsoring company/trust
–
Credit:
Rated by NRSRO
–
Credit enhancements:
Some combination of subordination and credit tranching, overcollateralization, reserve accounts, excess spread, letter of credit, and insurance
–
Maturity:
Typically up to 10 years
–
Liquidity:
Moderate
–
Offering yield:
Higher than U.S. Treasuries and Federal Agency obligations
• California Government Code limits: –
“AA” minimum credit rating required
–
20% maximum
–
5-year maximum maturity
© PFM Asset Management LLC
Types of ABS Most Common:
Other:
•
Auto loans/leases
• Airplane leases
•
Credit card receivables
• Manufactured housing loans
•
Student loans
• Trade receivables
•
Equipment loans/leases
• Dealer floor plan loans
•
Home equity loans
• Utility transition cost receivables • Royalties
© PFM Asset Management LLC
Auto Loan ABS Structure Credit Enhancement: • Reserve Account • Over-collateralization • Yield Supplement • Excess Spread • Subordination
© PFM Asset Management LLC
Toyota Auto Receivables 2014-A Owner Trust
© PFM Asset Management LLC
TOAT 2014-A
© PFM Asset Management LLC
TOAT 2014-A
© PFM Asset Management LLC
Deal Tranches – TOAT 2014-A
© PFM Asset Management LLC
“Sequential” Tranche Paydowns
© PFM Asset Management LLC
Collateral Characteristics
© PFM Asset Management LLC
Charge-offs During Credit Crisis •
Limited charge-off during the height of the credit crisis impacted the lower credit quality structures.
Net Charge-off Rates for Auto Loan and Credit Card ABS vs Unemployment Rates
© PFM Asset Management LLC
Credit Enhancement
Credit Enhancement: • Reserve Account • Over-collateralization • Yield Supplement • Excess Spread • Subordination © PFM Asset Management LLC
PFMAM’s Credit Review and Monitoring Process •
PFMAM’s Approval Guidelines and Procedures: –
ABS sub-committee
–
Permitted issuers/sponsors
– •
•
Permitted structures
Purchase Criteria: –
Permitted by Policy
–
Meet PFMAM’s approval criteria
–
Suitability
–
Assessment of value
Monitoring Procedures: –
Credit ratings
–
Deal and collateral performance
–
Credit support metrics
–
Sector performance
© PFM Asset Management LLC
PFM has specific approval and monitoring procedures for ABS. Approval is deal specific. Dependent on complete structure review.
ABS Yield Advantage (bps)
Period Ended September 30, 2016
1000
900 Yield Spread (basis points)
YTD
0-3 Year ABS OAS
800
1 Year 3 Years 5 Years
1-3 Year Indices
700 600 500 400
U.S. Treasury
1.33% 0.88% 0.85% 0.69%
Agency
1.31% 0.94% 0.95% 0.83%
0-3 Year ABS*
1.86% 1.67% 1.32% 1.29%
300 200 100
Source: Bloomberg, through 09/30/16. OAS is option-adjusted spread. *Includes securities not available for purchase under CA Code 53601. © PFM Asset Management LLC
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
0
Government Instrumentalities (Supranationals) • Bonds issued by supranational organizations, which are international financial institutions that are generally established by agreements among nations, with member nations contributing capital and participating in management. –
Issuer:
International Bank for Reconstruction and Development, International Finance Corporation, or Inter-American Development Bank
–
Credit:
Rated by NRSRO
–
Maturity:
Typically up to 10 years
–
Liquidity:
Moderate
–
Offering yield: Close to U.S. Treasuries and Federal Agency obligations
• California Government Code limits: –
“AA” minimum credit rating required
–
30% maximum
–
5-year maximum maturity
• PFM Credit Committee Recommendation –
Rating Category of “AAA,” its equivalent or higher
© PFM Asset Management LLC
International Bank for Reconstruction and Development Mission/Purpose Reconstruction and poverty reduction through an inclusive and sustainable globalization. Largest Shareholders • U.S. - 17.6% • Japan - 7.6% • China - 4.9% • Germany - 4.4% • United Kingdom - 4.2% • France - 4.2% Rating AAA/Aaa/AAA
Source: World Bank Group. Bloomberg as of 9/30/2016. © PFM Asset Management LLC
International Finance Corporation Mission/Purpose Member of the World Bank Group, focused on the private sector in developing countries, including environmental and social sustainability, infrastructure, health, education, the food-supply chain, and developing local financial markets. Largest Shareholders • U.S. - 21.0% • Japan - 6.0% • Germany - 4.8% • France - 4.5% • UK - 2.3% Rating AAA/Aaa/AAA
Source: The World Bank Group. Bloomberg as of 09/30/16. © PFM Asset Management LLC
Inter-American Development Bank Mission/Purpose Providing financing and expertise for sustainable economic, social, and institutional development in Latin America and the Caribbean, including efforts to reduce poverty and provide for environmental sustainability.
Largest Shareholders • U.S. - 30.0% • Argentina - 11.3% • Brazil - 11.3% • México - 7.2% • Japan - 5.0% • Venezuela - 3.7% Rating AAA/Aaa/AAA
Source: Inter-American Development Bank Annual Report 2015. Bloomberg as of 7/26/16. © PFM Asset Management LLC
Supranational Yield Advantage (bps)
200
Period Ended September 30, 2016
175
1-3 Year Agency OAS
Yield Spread (basis points)
150
YTD
1 Year 3 Years 5 Years
1-3 Year AAA Supranational OAS
1-3 Year Indices
125 U.S. Treasury
1.33% 0.88% 0.85% 0.69%
75
Agency
1.31% 0.94% 0.95% 0.83%
50
Supranational AAA
1.51% 1.08% 1.01% 1.00%
100
25
Source: Bloomberg, through 9/30/16. OAS is option-adjusted spread. © PFM Asset Management LLC
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
0
Disclaimer This material is based on information obtained from sources generally believed to be reliable and available to the public, however PFM Asset Management LLC cannot guarantee its accuracy, completeness or suitability. This material is for general information purposes only and is not intended to provide specific advice or a specific recommendation. All statements as to what will or may happen under certain circumstances are based on assumptions, some but not all of which are noted in the presentation. Assumptions may or may not be proven correct as actual events occur, and results may depend on events outside of your or our control. Changes in assumptions may have a material effect on results. Past performance does not necessarily reflect and is not a guaranty of future results.The information contained in this presentation is not an offer to purchase
or sell any securities.
© PFM Asset Management LLC
PFM Asset Management LLC 50 California Street, Suite 2300 San Francisco, CA 94111 415-982-5544
© PFM Asset Management LLC
Asset-Backed Security (ABS) • Securities issued by a sponsoring company and backed by pools of assets. The sponsoring company creates a branded, bankruptcy-remote trust to ensure debt holders have access to the cash flows from the assets as collateral. –
Issuer:
Sponsoring company/trust
–
Credit:
Rated by NRSRO
–
Credit enhancements:
Some combination of subordination and credit tranching, overcollateralization, reserve accounts, excess spread, letter of credit, and insurance
–
Maturity:
Typically up to 10 years
–
Liquidity:
Moderate
–
Offering yield:
Higher than U.S. Treasuries and Federal Agency obligations
• California Government Code limits: –
“AA” minimum credit rating required
–
20% maximum
–
5-year maximum maturity
© PFM Asset Management LLC
Types of ABS Most Common:
Other:
•
Auto loans/leases
• Airplane leases
•
Credit card receivables
• Manufactured housing loans
•
Student loans
• Trade receivables
•
Equipment loans/leases
• Dealer floor plan loans
•
Home equity loans
• Utility transition cost receivables • Royalties
© PFM Asset Management LLC
Auto Loan ABS Structure Credit Enhancement: • Reserve Account • Over-collateralization • Yield Supplement • Excess Spread • Subordination
© PFM Asset Management LLC
Toyota Auto Receivables 2014-A Owner Trust
© PFM Asset Management LLC
TOAT 2014-A
© PFM Asset Management LLC
TOAT 2014-A
© PFM Asset Management LLC
Deal Tranches – TOAT 2014-A
© PFM Asset Management LLC
“Sequential” Tranche Paydowns
© PFM Asset Management LLC
Collateral Characteristics
© PFM Asset Management LLC
Charge-offs During Credit Crisis •
Limited charge-off during the height of the credit crisis impacted the lower credit quality structures.
Net Charge-off Rates for Auto Loan and Credit Card ABS vs Unemployment Rates
© PFM Asset Management LLC
Credit Enhancement
Credit Enhancement: • Reserve Account • Over-collateralization • Yield Supplement • Excess Spread • Subordination © PFM Asset Management LLC
PFMAM’s Credit Review and Monitoring Process •
PFMAM’s Approval Guidelines and Procedures: –
ABS sub-committee
–
Permitted issuers/sponsors
– •
•
Permitted structures
Purchase Criteria: –
Permitted by Policy
–
Meet PFMAM’s approval criteria
–
Suitability
–
Assessment of value
Monitoring Procedures: –
Credit ratings
–
Deal and collateral performance
–
Credit support metrics
–
Sector performance
© PFM Asset Management LLC
PFM has specific approval and monitoring procedures for ABS. Approval is deal specific. Dependent on complete structure review.
ABS Yield Advantage (bps)
Period Ended September 30, 2016
1000
900 Yield Spread (basis points)
YTD
0-3 Year ABS OAS
800
1 Year 3 Years 5 Years
1-3 Year Indices
700 600 500 400
U.S. Treasury
1.33% 0.88% 0.85% 0.69%
Agency
1.31% 0.94% 0.95% 0.83%
0-3 Year ABS*
1.86% 1.67% 1.32% 1.29%
300 200 100
Source: Bloomberg, through 09/30/16. OAS is option-adjusted spread. *Includes securities not available for purchase under CA Code 53601. © PFM Asset Management LLC
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
0
Government Instrumentalities (Supranationals) • Bonds issued by supranational organizations, which are international financial institutions that are generally established by agreements among nations, with member nations contributing capital and participating in management. –
Issuer:
International Bank for Reconstruction and Development, International Finance Corporation, or Inter-American Development Bank
–
Credit:
Rated by NRSRO
–
Maturity:
Typically up to 10 years
–
Liquidity:
Moderate
–
Offering yield: Close to U.S. Treasuries and Federal Agency obligations
• California Government Code limits: –
“AA” minimum credit rating required
–
30% maximum
–
5-year maximum maturity
• PFM Credit Committee Recommendation –
Rating Category of “AAA,” its equivalent or higher
© PFM Asset Management LLC
International Bank for Reconstruction and Development Mission/Purpose Reconstruction and poverty reduction through an inclusive and sustainable globalization. Largest Shareholders • U.S. - 17.6% • Japan - 7.6% • China - 4.9% • Germany - 4.4% • United Kingdom - 4.2% • France - 4.2% Rating AAA/Aaa/AAA
Source: World Bank Group. Bloomberg as of 9/30/2016. © PFM Asset Management LLC
International Finance Corporation Mission/Purpose Member of the World Bank Group, focused on the private sector in developing countries, including environmental and social sustainability, infrastructure, health, education, the food-supply chain, and developing local financial markets. Largest Shareholders • U.S. - 21.0% • Japan - 6.0% • Germany - 4.8% • France - 4.5% • UK - 2.3% Rating AAA/Aaa/AAA
Source: The World Bank Group. Bloomberg as of 09/30/16. © PFM Asset Management LLC
Inter-American Development Bank Mission/Purpose Providing financing and expertise for sustainable economic, social, and institutional development in Latin America and the Caribbean, including efforts to reduce poverty and provide for environmental sustainability.
Largest Shareholders • U.S. - 30.0% • Argentina - 11.3% • Brazil - 11.3% • México - 7.2% • Japan - 5.0% • Venezuela - 3.7% Rating AAA/Aaa/AAA
Source: Inter-American Development Bank Annual Report 2015. Bloomberg as of 7/26/16. © PFM Asset Management LLC
Supranational Yield Advantage (bps)
200
Period Ended September 30, 2016
175
1-3 Year Agency OAS
Yield Spread (basis points)
150
YTD
1 Year 3 Years 5 Years
1-3 Year AAA Supranational OAS
1-3 Year Indices
125 U.S. Treasury
1.33% 0.88% 0.85% 0.69%
75
Agency
1.31% 0.94% 0.95% 0.83%
50
Supranational AAA
1.51% 1.08% 1.01% 1.00%
100
25
Source: Bloomberg, through 9/30/16. OAS is option-adjusted spread. © PFM Asset Management LLC
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
0
Disclaimer This material is based on information obtained from sources generally believed to be reliable and available to the public, however PFM Asset Management LLC cannot guarantee its accuracy, completeness or suitability. This material is for general information purposes only and is not intended to provide specific advice or a specific recommendation. All statements as to what will or may happen under certain circumstances are based on assumptions, some but not all of which are noted in the presentation. Assumptions may or may not be proven correct as actual events occur, and results may depend on events outside of your or our control. Changes in assumptions may have a material effect on results. Past performance does not necessarily reflect and is not a guaranty of future results.The information contained in this presentation is not an offer to purchase
or sell any securities.
© PFM Asset Management LLC
