Sales Of “Esoteric” Junk ABS Highest Since 2008

By  Tracy Alloway and Matt Scully At Bloomberg

Coming soon to markets: a bond deal backed by … dirty laundry?

The $400 million of asset-backed securities (ABS) from Alliance Laundry Systems is the latest example of wacky assets being bundled into bonds that are then put up for sale to yield-hungry investors. According to a ratings report from Standard Poor’s, the bond’s payments ultimately depend on people’s dirty laundry, or at least on their washing it. The deal is backed by a pool of equipment loans used to finance the purchase of washing machines.

The laundry deal is the most recent “esoteric ABS” being sold to the market. Such bonds might include such things as time-share loans and cash flows from shipping containers leases, but can also stretch to more unusual things such as music royalties and restaurant franchises. Other assets that have been sliced and diced into structured securities include the rights to the Peanuts cartoon strip in 2012 and, back in 2007, some race horse stud rights.

Such deals have proved popular with investors in recent years thanks to the higher yields available from buying the securities. The computer giant Dell in April sold a $1 billion deal tied to leases on heavy technology equipment, which paid a coupon as big as 2.84 percent over just 2.7 years — far more than the 1.12 percent yield on offer from buying a three-year U.S. Treasury, for example.

In fact, sales of esoteric ABS are now higher than at any point since 2008, according to J.P. Morgan analysts Amy Sze, Kaustub Samant, and Christy Wong.

They expect bonds backed by more unusual types of collateral to climb to $25 billion this year, up from $22 billion in 2014.

In the first quarter alone, sales of esoteric bonds more than doubled from a year ago, to $8.7 billion, the analysts say.

As for the laundry deal, Standard

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